Chapter 607 Investing in Goldman Sachs
To be honest, as the investment company with the shortest time and smallest assets, IC Capital’s participation in this meeting feels a little far-fetched.
But nothing happens without reason.
The theme of this meeting is how these capitals can resist the subprime mortgage crisis. Among them, what everyone is most concerned about is seeking capital injection.
Especially Wall Street capitals like Goldman Sachs Group, Citigroup, and Morgan Stanley, which are at the center of the subprime mortgage crisis. In addition to finding ways to obtain loans from the government and the Federal Reserve, the injection of external funds is also very important.
As for banks such as JPMorgan Chase, Bank of America and Wells Fargo, which hope to make acquisitions to expand their scale through the subprime mortgage crisis, they are also concerned about raising financing from domestic and foreign capital.
IC Capital is negotiating with Goldman Sachs Group and is preparing to provide it with up to US$5 billion in funding.
At the beginning, Goldman Sachs Group wanted to seek help from Buffett's Berkshire Hathaway, hoping to sell it no less than US$2.5 billion in common shares.
But Buffett rejected this proposal and instead proposed another plan - he hoped to purchase Goldman Sachs' permanent preferred shares with a 10% dividend for US$5 billion.
In addition, as an additional term for this investment, Berkshire Hathaway also needs permission to purchase $5 billion worth of common shares of Goldman Sachs Group at any time within 5 years, per The price of the stock is only $115.
What needs to be understood is that the current share price of Goldman Sachs Group is around US$125...
In Barron's previous life, Goldman Sachs had no choice but to finally agree to Buffett's conditions.
This also led to the fact that in April 2011, when Goldman Sachs was eager to pay US$5.5 billion from Berkshire Hathaway to redeem its preferred shares, only dividends and premiums were paid to it. Approximately US$1.75 billion was paid...
Because according to the agreement at the time, the Goldman Sachs preferred shares purchased by Buffett stipulated the payment of a fixed dividend of 10% per year, equivalent to US$500 million per year.
In addition, when redeeming, Goldman Sachs has to pay an additional 10% premium, which is US$500 million.
Two and a half years of dividends plus a $500 million premium is $1.75 billion.
If you include the options Buffett received from Goldman Sachs, you can purchase 43.5 million shares of Goldman Sachs at $115 per share before October 1, 2013.
Based on the closing price of Goldman Sachs' stock of $154 per share when it redeemed the $5 billion in preferred shares, if Buffett had exercised these options on that day, he would have earned approximately $1.65 billion.
In total, in two and a half years, Buffett earned back US$3.4 billion from the US$5 billion invested in Goldman Sachs!
What's more, he was not in a hurry to exercise the option at that time. Instead, he waited until the option expired and directly exchanged his profits for ordinary shares of Goldman Sachs Group.
This also enabled Buffett to obtain 9.2 million shares of Goldman Sachs common stock without spending a penny, accounting for 2% of the total outstanding shares of Goldman Sachs Group.
It’s no wonder that Buffett has been publicly stating that he wants to hold Goldman Sachs’ preferred stock investments for as long as possible.
He also emphasized this point in his letters to shareholders in 2009 and 2010 - there is no doubt that the return on this investment is very attractive. In dividends alone, Buffett takes in about 140 RMB every day. million dollars.
At the 2010 shareholder meeting, Buffett made a calculation in front of 40,000 shareholders -
"Goldman Sachs pays us $15 per second..."
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Buffett said: "Tick tock, tick tock, tick tock... the sound of the watch has become so sweet."
...
In Barron's previous life, Goldman Sachs Group was in urgent need of help. With funds, there is no other way but to agree to Buffett's conditions.
Now, they have a better choice.
Although IC Capital cannot compare with Berkshire Hathaway in terms of "heavyweight" in the investment industry, their investment in Goldman Sachs has not had as much of a "fixing needle" effect on the market as the other party...
< br>But the investment conditions provided by IC Capital are very exciting to Goldman Sachs Group!
IC Capital does not need to obtain a high annual interest of 10% in the form of preferred shares, but is willing to directly purchase the common shares of the company group - of course, the purchase price needs to be given a discount.
Finally, Goldman Sachs Group signed an agreement with IC Capital to sell 43.5 million Goldman Sachs shares to IC Capital at a price of US$115 per share, which brought IC Capital’s holdings of Goldman Sachs shares to 9%. proportion, becoming one of the major shareholders of Goldman Sachs Group.
In addition, IC Capital is also allowed to appoint a director to the board of directors of Goldman Sachs Group, with one voting right.
Although this investment from IC Capital will not yield as high a return as Buffett’s $5 billion investment.
But Barron and Ivanta are still very satisfied, because not only are they investing in Goldman Sachs Group shares now, but they will receive huge returns if they hold them for a long time in the future, and they will also be on the board of directors of Goldman Sachs Group. Both IC Capital and Ivanta himself are of great benefit to their future development.
And relying on the many resources of Goldman Sachs Group will be more beneficial to IC Capital’s future acquisitions and the development of their companies.
This is the first financing transaction for Goldman Sachs Group after it transformed from an investment bank into a bank holding company.
The reason why Goldman Sachs and Morgan Stanley chose to convert from investment banks to bank holding companies is because the main regulator of investment banks is the Securities and Exchange Commission, while the main regulator of bank holding companies is the Federal Reserve - such a transformation , which allows Goldman Sachs and Morgan Stanley to obtain loans directly from the Federal Reserve when they are regulated by the Federal Reserve, thereby reducing the risk of a run on short-term funds.
In addition to investing in Goldman Sachs in the name of IC Capital, other funds owned by Barron will also participate in investments in other Wall Street capitals.
After all, Standard Chartered Bank has acquired a considerable part of the assets of Northrock Bank, Merrill Lynch Group and IndyMac Bank in a short period of time.
It can be said that after becoming Standard Chartered-Merrill Lynch, its size has more than doubled.
What Standard Chartered-Merrill Lynch Group needs to do most now is to first complete the integration of this series of acquisitions and digest the "prey" it has just swallowed. Otherwise, it will easily leave big problems for future development. .
At present, not counting other funds, the British Fortune Era (BFT) Fund alone still has more than 40 billion US dollars in funds in its account.
As this series of important companies in the Wall Street financial industry...Lehman Brothers, Merrill Lynch, American International Group and other companies have experienced problems one after another, under the panic and the liquidity of the financial market has dried up, it is not just the United States that is affected by this. The stock market and global stock markets have begun a continuous decline.
The funds and investment companies controlled by Barron, who had long been shorting the global stock market, naturally made a lot of money.
These funds, and part of the profits, can also be used to start bargain-hunting acquisitions and investments.
(End of this chapter)