Rebirth of England.

Chapter 607 Investing in Goldman Sachs
To be honest, as the investment company with the shortest establishment time and the smallest asset scale, it feels a bit far-fetched for IC Capital to participate in this meeting.

But nothing happens without reason.

The theme of this conference is how these capitals can resist the subprime mortgage crisis, and what everyone is most concerned about is seeking capital injection.

Especially for Wall Street capitals like Goldman Sachs, 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 like JPMorgan Chase, Bank of America and Wells Fargo that hope to take advantage of the subprime mortgage crisis to make acquisitions and expand their own scale, raising funds from domestic and foreign capital is also a concern for them.

IC Capital is currently in talks with Goldman Sachs to provide it with up to US$50 billion in funding.

At the beginning, Goldman Sachs wanted to seek help from Buffett's Berkshire Hathaway, hoping to sell it no less than US$25 billion in common stock.

But Buffett rejected the offer and instead proposed another plan - he wanted to buy Goldman Sachs' perpetual preferred shares with a 50% dividend for $10 billion.

In addition, as an additional term of this investment, Berkshire Hathaway also needs permission to purchase $5 billion worth of Goldman Sachs common stock at any time within five years, at a price of only $50 per share.

It is important to understand that the current share price of Goldman Sachs is around $125…

In Barron's previous life, Goldman Sachs was forced to agree to Buffett's conditions.

This also led to the fact that when Goldman Sachs could not wait to pay Berkshire Hathaway $2011 billion to redeem its preferred shares in April 4, it paid it about $55 billion in dividends and premiums alone...

Because according to the agreement at the time, the Goldman Sachs preferred shares purchased by Buffett stipulated that a fixed dividend of 10% would be paid each year, equivalent to US$5 million per year.

In addition, upon redemption, Goldman Sachs will have to pay an additional 10% premium, which is $5 million.

Two and a half years of dividends plus a $5 million premium equals $17.5 billion.

如果再算上巴菲特获得高盛的期权，可以在2013年10月1日之前以115美元每股购买4350万股高盛股票。

Based on the closing price of Goldman Sachs' stock of $50 per share when it redeemed the $154 billion in preferred shares, if Buffett had exercised these options on the same day, he could have made a guaranteed profit of about $16.5 billion.

All in all, in two and a half years, Buffett earned back $50 billion on his $34 billion investment 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 Goldman Sachs common stock.

This also allowed Buffett to obtain 920 million shares of Goldman Sachs common stock without spending a penny, accounting for 2% of the total outstanding shares of Goldman Sachs Group.

It is no wonder that Buffett has publicly stated that he wants to hold his investment in Goldman Sachs preferred stock for as long as possible.

This point was particularly emphasized in his 2009 and 2010 letters to shareholders - there is no doubt that the returns on this investment are very attractive. In dividends alone, Buffett earns about $140 million a day.

At the 2010 shareholders' meeting, Buffett did some calculations in front of 4 shareholders:

"Goldman Sachs pays us $15 per second..."

Buffett said: "Tick, tick, tick... the sound of the watch has become so pleasant to the ear."

……

In Barron's previous life, Goldman Sachs was in urgent need of funds and had no choice but to agree to Buffett's conditions.

Now, they have a better choice.

Although IC Capital cannot compare with Berkshire Hathaway in terms of investment industry "heavyweight", their investment in Goldman Sachs did not have the same "stabilizing effect" on the market as the other company...

But the investment conditions offered by IC Capital were very attractive to Goldman Sachs!
IC Capital does not need to obtain a high annual interest rate of 10% in the form of preferred shares, but is willing to directly purchase the common shares of the corporate group - of course, the purchase price needs to be discounted.

Eventually, Goldman Sachs Group signed an agreement with IC Capital to sell 115 million shares of Goldman Sachs to IC Capital at US$4350 per share. This increased IC Capital's stake in Goldman Sachs to 9%, making it one of the major shareholders of Goldman Sachs Group.

IC Capital is also allowed to send one director to the Goldman Sachs Group's board of directors with one vote.

Although IC Capital’s investment will not generate as high a return as Buffett’s $50 billion investment in the original time and space.

But Barron and Ivanta are still very satisfied, because not only will investing in Goldman Sachs shares now bring rich returns if held for a long time in the future, but also entering the board of directors of Goldman Sachs will be of great benefit to the future development of both IC Capital and Ivanta himself.

Moreover, relying on the many resources of Goldman Sachs Group will be more conducive to IC Capital's future acquisitions and the development of its subsidiaries.

This is the first financing transaction after Goldman Sachs Group transformed from an investment bank to a bank holding company.

The reason why Goldman Sachs and Morgan Stanley chose to transform from investment banks to bank holding companies is that 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 will enable Goldman Sachs and Morgan Stanley to obtain loans directly from the Federal Reserve while being regulated by the Federal Reserve, thereby reducing the risk of short-term funds being run.

In addition to investing in Goldman Sachs under the name of IC Capital, other funds owned by Baron will also participate in investments in other Wall Street capitals.

After all, Standard Chartered Bank has acquired considerable assets from Northern Rock Bank, Merrill Lynch 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 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.

Not counting other funds, there are more than 400 billion US dollars in the account of the British Fortune Times (BFT) fund alone.

As a series of important companies in Wall Street's financial industry... Lehman Brothers, Merrill Lynch, American International Group and other companies encountered problems one after another, panic occurred, and the liquidity of the financial market dried up. Affected by this, not only the American stock market, but also the global stock market began to fall continuously.

The funds and investment companies controlled by Baron, who had already arranged to short the global stock market, naturally made a fortune.

Part of the profits from these funds can also be used to start bargain-hunting acquisitions and investments.

(End of this chapter)