Warren Buffett Investing in Goldman Sachs for 5 Billions??

Posted by Kris | Wednesday, September 24, 2008 | | 0 comments »

Shares of the remaining independent investment banks, Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), rose in premarket trading as investor confidence was revived amid news that billionaireWarren Buffett will invest $5 billion in Goldman.

The deal, marking one of the largest expressions of confidence in the financial system since the credit crisis began to intensify in recent weeks, gave stocks overall a jolt a day after equities fell again amid broad economic fears as a $700 billion bailout plan remains caught in a political crossfire in Congress.

Goldman - which also said Tuesday it will raise at least $2.5 billionin common equity in a public offering - was up 4% to $130 in recent premarket trading, while Morgan Stanleyjumped 4.5% to $29.26. Both shares finished up about 3.5% Tuesday, a relatively quiet day for financial stocks in comparison to recent sessions.

Buffett's deal with Goldman is the latest in a series of dramatic events that have reshaped American finance this month. The federal takeover several weeks ago of Fannie Mae (FNM) and Freddie Mac (FRE) were the first of the major moves. Last week came the bankruptcy filing of Lehman Brothers Holdings Inc. (LEHMQ),Bank of America Corp.'s (BAC) planned acquisition of Merrill Lynch & Co. (MER) and the bailout of American International Group Inc. (AIG), while this weekend Goldman and Morgan Stanley agreed to be converted into commercial banks.

The move by Buffett's Berkshire Hathaway Inc. (BRKA) capped a day of bruising hearings in Congress Tuesday over the fate of the Treasury Department's plan to buy $700 billion in distressed assets from financial institutions, in a bid to shore up the banking system. The plan is still expected to pass, though it is coming under increasing fire.

Fannie and Freddie, which logged some of the largest gains Tuesday - closing up 66% and 55%, respectively, added to those gains in recent premarket trading as they both rose more than 10%.

Washington Mutual Inc. (WM), whose stock fell 3.9% Tuesday amid worries about the nation's largest savings-and-loan as it continues to be courted by a number of potential suitors but has yet to announce any major moves, jumped 6.3% to $ 3.40 premarket.

The country's big banks were all up about 1% premarket, in line with the increase of stock-index futures. Also up that amount was General Electric Co. ( GE), which fell 4.6% Tuesday as Merrill Lynch cut its rating on the conglomerate, citing concerns about its financial arm