Soon after the Securities and Exchange Commission sued Goldman Sachs Group Inc. (NYSE: GS - News) alleging fraud, Goldman Chief Executive Lloyd Blankfein asked Warren Buffett for tips on how to handle the explosive situation, according to people familiar with the matter.
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Mr. Buffett, whose Berkshire Hathaway Inc. (NYSE: BRK-A - News) invested $5 billion in Goldman at the height of the financial crisis, told Mr. Blankfein he would let him know if he came up with any good ideas.
Berkshire shareholders heading to Omaha, Neb., this weekend may soon get a view into Mr. Buffett's thinking. "I expect to get multiple questions about Goldman and I'll give extensive and complete replies," he said in an interview Thursday.Charlie Munger, Mr. Buffett's longtime business partner at Berkshire's helm who shares the stage with him at the meeting, will likely have some choice words for Wall Street.
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While Mr. Munger thinks Goldman did nothing illegal, the firm was engaged in "socially undesirable" activities, he said in an interview after the SEC lawsuit was filed.
"They were very competitive in maximizing profits in a competitive industry that was permitted to operate like a gambling casino," Mr. Munger said. "The whole damn industry lost its moral moorings."
He added that he believes Goldman is "more prudent and ethical" than other big Wall Street banks.
Goldman didn't comment. Late Thursday, The Wall Street Journal reported that the U.S. Attorney's Office in Manhattan is conducting a criminal probe into the bank's mortgage trading.
The SEC alleges that Goldman defrauded investors when it created a mortgage investment with the help of a bearish hedge fund and failed to disclose the fund's role and position. The bank has denied wrongdoing.
The suit is potentially of special concern to Mr. Buffett, known for his ethical standards. Ever since he was a small-town money manager in Omaha, where he has lived most of his life, he has lambasted the aggressive, self-serving tactics of Wall Street's banking elite.
It was Mr. Buffett's reputation and leadership that helped save another Wall Street investment bank, Salomon Brothers, from the brink of collapse when it was embroiled in a bid-rigging scandal involving Treasury bonds.
Mr. Buffett seized the reins at Salomon in 1991 and steered it through the crisis (it was bought by Citigroup). In testimony before Congress on the events then, Mr. Buffett said he wanted Salomon employees "to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper."
When Berkshire's Goldman deal was announced in September 2008, Mr. Buffett indicated that his investment was based in part on his belief in the quality of Goldman's management, including Mr. Blankfein. Several top managers, including Mr. Blankfein, were grilled by Congress this week regarding the SEC lawsuit and, more broadly, the firm's loyalty to clients.
Speaking of Mr. Blankfein on Thursday, Mr. Buffett said: "I first met him some years before our investment and have gotten to know him well. I was obviously impressed with him." He added that he has known every head of Goldman since Gus Levy led the firm more than three decades ago.
Mr. Buffett continues to earn huge profits from his Goldman investment, which pours more than $900 a minute into Berkshire's coffers, or $500 million a year. "If he could do [the Goldman investment] again he'd do it in a heartbeat," said Glenn Tongue, a partner with T2 Partners, a New York hedge fund that owns Berkshire shares.
Another issue that could emerge at the meeting: Mr. Buffett's views on financial regulation. Mr. Buffett himself has been drawn into the clash as his hometown senator, Democrat Ben Nelson, has broken ranks with his party, partly to oppose a provision Berkshire also has fought. The proposal, which concerns derivative contracts, could force Berkshire to set aside billions in collateral for a number of contracts the firm has written in recent years. Other companies also could find themselves on the hook to post more collateral.
Berkshire executive David Sokol met with lawmakers on Capitol Hill to try to get the provision struck from the bill. Mr. Buffett has made a number of campaign contributions to Mr. Nelson and the men are longtime friends.
In a statement Wednesday, Mr. Nelson said he objects to the amendment because he feels it is wrong for any company. The provision "may affect several hundred major American businesses, including Nebraska's own Berkshire Hathaway, and other Nebraska businesses as well," the statement said.
Despite such issues, investors heading to Omaha say they expect a return to the upbeat atmosphere of previous years. The 2009 meeting was a relatively subdued affair as investors grappled with a crippling recession.
But in the past year, Mr. Buffett made his biggest deal, the $26 billion purchase of what Berkshire didn't own of railroad Burlington Northern Santa Fe.
In February, Berkshire became a component of the S&P 500 index, a result of a stock split carried out for the Burlington purchase. The split made owning Berkshire stock a possibility for many smaller investors.
- Warren Buffett
- Berkshire Hathaway Inc
- Goldman Sachs Group Inc.