Warren Buffett's $5B bet on Goldman boosts markets
TORONTO - Financial markets showed signs of stabilizing today as Warren Buffett bolstered confidence with a US$5-billion investment in Goldman Sachs Group Inc.
The move by Berkshire Hathaway Inc., headed by the legendary value investor, renewed hopes that surviving U.S. financial firms will endure through their credit crisis.
Overseas stock markets were generally modestly higher and Wall Street stock index futures pointed to a flat open, after the Dow Jones industrial average dropped 162 points Tuesday and Toronto's S&P/TSX composite index fell 105.
In addition to buying $5 billion in Goldman Sachs preferred stock, Berkshire received warrants to buy $5 billion of common shares. Goldman also said late Tuesday it plans to raise $2.5 billion in a public stock offering - a number it doubled early Wednesday.
Meanwhile, investors were looking toward a second day of congressional testimony by U.S. Treasury Secretary Henry Paulson -- a former co-CEO of Goldman Sachs -- and Federal Reserve chairman Ben Bernanke.
Both are pressing for quick approval of the Bush administration's $700-billion bailout of the financial industry.
But their day on Capitol Hill Tuesday unnerved stock investors amid doubts that lawmakers will accept the necessity and structure of the bailout.
In the bond market, demand for short-term government securities remained strong as investors sought safe places to keep cash. The yield on the three-month U.S. Treasury bill was at a mere 0.71 per cent early Wednesday, down from 0.79 per cent late Tuesday.
The U.S. dollar, whose weakness earlier this week contributed to intense volatility in the markets on Monday, was up against the euro and Japanese yen.
But the Canadian dollar opened at 96.59 cents US, up 0.09 cent against the greenback.
Light sweet crude oil for November delivery rose $2.49 to $109.10 a barrel on the New York Mercantile Exchange. Gold was higher by $3.80 at US$895 an ounce.
Overseas, good feeling about Buffett's show of confidence was largely offset by uncertainty about Washington's economic rescue plan.
The FTSE 100 slipped 13.8 points to 5,122.3 early in the afternoon in London.
Germany's DAX was up 0.1 per cent and the Paris CAC-40 was down 0.1 per cent, as surveys showed business confidence at a three-year low in Germany and a five-year low in France.
Earlier, Tokyo's benchmark Nikkei 225 index climbed 0.2 per cent to close at 12,115.03 after spending much of the day in negative territory.
Japanese financial issues were higher, with Nomura Holdings Inc., the country's biggest brokerage, jumping 5.2 per cent after announcing it would European and Mideast operations of bankrupt American investment bank Lehman Brothers.
Mitsubishi UFJ Financial Group advanced 4.2 per cent. Elsewhere, Australian investment bank Macquarie Group surged almost 11 per cent.
Hong Kong's Hang Seng index climbed 0.5 per cent to 18,961.99, while the Shanghai composite advanced 0.7 per cent, led by oil giant Sinopec and phone company China Unicom following government steps to support the market.
The Berkshire Hathaway news "helped investors for overall sentiment for now," said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong.
"But long term there are still concerns about the banking sector. Many are still cautious about the U.S. rescue plan."
The European Central Bank offered more overnight cash to European banks in its continuing effort to keep money flowing between banks that are wary about lending to each other.
The Frankfurt-based ECB, the central bank for the 15 countries that use the euro, offered US$40 billion on Wednesday, while the U.S. Federal Reserve supplied US$30 billion in temporary swap arrangements to the central banks of Australia, Denmark, Norway and Sweden.