Wednesday, September 17, 2008

BRK + GS?

As the financial crisis continues to spin, the unthinkable may happen. Goldman Sachs, the proudest of the investment banks, may be forced to sell.

As this post on the Freakonomics blog notes, this isn't because Goldman is poorly run, or is a bad business. It's simply that it's nearly impossible for anyone to obtain short term financing in the current market climate.

If Goldman has to sell, I think that the most logical buyer is Warren Buffett and Berkshire Hathaway.

Think about it--BRK has one of the strongest balance sheets in the world. And Buffett knows that the underlying business (and most important, the management team) is the best in the industry.

It would violate Warren's dictum to avoid investing in i-banks (a hard lesson he learned from his Salomon Brothers adventure), but Warren is certainly capable of taking such a broad stroke.

And for Goldman, it would represent the best possible option. The proud partners at Goldman don't want to sell out to some megabank and take orders from retail or commercial bankers. Buffett would let them focus on doing what they do best: minting money.

Remember, if it happens, you heard it here first!

2 comments:

Richard said...

Unthinkable? At one time it would have been unthinkable that the horse-and-buggy industry wouldn't dominate individual transportation :) It would be a big event, but that's the kind of thing that happens when your "once in a hundred years" events are occuring every decade.

Maybe it really has nothing to do with their actions but as much as I read about finance I still don't really know what GS does. That usually indicates a business where you need to be very careful about the risks you take... or ready to sell out at a moment's notice.

paul said...

BRK - never. :) Buffett isn't touching that with a ten foot pole and $10 billion. Investment banks are dead. It's going to be a retail/commercial bank - if anything. The last of the late great investment banks rolled.

UNLESS!! Against all odds some of the outlying predictions of the IPO market heating up actually comes to fruition and GS has the ability to ride out this current situation - with a little extra cash from BRK.

If Buffett feels like this is the way the market will go, and there will only be one large investment bank getting all the business - then he may be willing to put up the money.

Hey Chris, will you float me a loan of $128,900?? I'd like to buy a share of stock before this deal goes down. :)