Berkshire Hathaway Inc’s Warren Buffett praised Goldman Sachs Group Inc Chief Executive Officer Lloyd Blankfein and said the bank shouldn’t be blamed for losses suffered by clients who invested in mortgage bets at the center of a fraud suit filed by regulators.
“He’s done a great job running that firm,” Buffett said yesterday in Omaha, Nebraska, in a Bloomberg Television interview before Berkshire’s annual shareholders meeting. He said he supports Blankfein “100 per cent.”
Buffett, 79, has become one of Goldman Sachs’s most visible advocates after the firm was sued last month by the US Securities and Exchange Commission for misleading clients who invested in a collateralized debt obligation known as Abacus 2007-AC1. The SEC said that firms including ABN Amro Bank NV weren’t told that the hedge fund led by John Paulson helped pick the mortgages in the CDOs and was betting on them to fail.
“I did not hold it against Goldman Sachs that an allegation has been made,” Buffett said. He said he’d review the case further “if it leads to something more serious.”
Buffett also backed Blankfein in January, saying the bank’s leader since 2006 “has been the right man” for the job. He said yesterday that Blankfein is “smart. He’s high grade.”
Buffett, who is also Berkshire’s CEO, invested $5 billion in Goldman Sachs in 2008 and has praised the bank for its risk management. Berkshire makes $500 million a year in interest on its Goldman Sachs preferred stock. The warrants Buffett negotiated as part of the deal give Berkshire the option to buy $5 billion of common stock for $115 a share. The shares closed at $145.20 on April 30.
Berkshire’s paper profit on the warrants is about $1.3 billion, down from about $3 billion before the SEC lawsuit was announced.
The bank, which said the suit is unfounded, must weigh the risks of a legal battle against the benefits of a more immediate resolution. Politicians have vilified the firm as a symbol of the Wall Street excess that led to the collapse of the subprime residential real estate market.
“There are plenty of CEOs I’d like to see gone. Lloyd Blankfein isn’t one of them,” Charles Munger, vice chairman of Berkshire, said at the meeting yesterday.
Berkshire has four decades of experience with Goldman Sachs and no expectation that the bank would offer investment advice or disclose its own stance on trades, Buffett said yesterday.
“We are in the business of making our own decisions,” Buffett said. “They do not owe us a divulgence of their position.”
Senator Carl Levin, who led a subcommittee that pilloried Blankfein on April 27, accused the bank of conflicts of interest for selling mortgage bets to clients as it cut its own housing exposure.
It “wasn’t so obvious” when the investments were sold in 2007 that the housing market would collapse, Buffett said yesterday. “I can’t see what difference it makes if it were Paulson on the other side of the deal or Goldman Sachs or Berkshire Hathaway.”
Berkshire swung to profit in the first quarter as rising markets increased the value of investments and a recovering economy boosted results at its industrial operations.
Net earnings were $3.63 billion in the first quarter after a gain of $1.4 billion on derivatives and investments, compared with a loss of $3.2 billion in the same period a year earlier, Buffett said yesterday. Operating earnings at Berkshire rose 30 per cent to $2.2 billion.
The US economy expanded at a 3.2 per cent annual rate in the first quarter as households spent more money, the Commerce Department said April 30. Consumer spending rose the most in three years, and business activity in the US expanded in April at the fastest pace in five years.
Berkshire, which cut more than 20,000 jobs in 2009, has been adding staff as the recovering economy boosts demand at its industrial units this year. The Labor Department said April 29 that fewer Americans filed claims for unemployment benefits the week before, a sign the economic rebound is beginning to lift the labor market.
