Sunday, 28 September 2008

Warren Buffet - Goldman Sachs Deal....Resurgence of Debt

Warren Buffet one of the most Richest man on earth (precisely 2nd richest as in 2008) has struck a Gold mine in the deal with Goldman Sachs.

We all should also look for such deals, if we want to enter into one. Alas these options are rarely made available to common investor instead of persons like Warren Buffet. Only people like Warren Buffet can extract such a beautiful deal and it would have been surprising if somebody else would have been offered such terms and conditions. So Lets take a stock what the terms of the deal are:

Investment: $ 5 Billion;

Type of Investment: Perpetual Preferred Stock;

Guaranteed Rate of Return: 10% p.a.;

Early Redemption Premium : 10%;

Options: Warrants to purchase common stock worth $ 5 Billion @ $115 per Share;

Option Expiry: 5 years

Current Interest Rate: 2.0 Percent (September 26, 2008)

Goldman Sachs Group, Inc. (NYSE)
137.99 +2.49 (1.84%) 26 Sep 4:00pm ET
Open: 132.49
High: 137.99
Low: 129.51
Volume: 15,809,462
Avg Vol: 22,793,000
Mkt Cap: 54.34B
After Hours: 137.20 -0.79 (-0.57%) 26 Sep 7:59pm ET

Warren Buffet seems to have taken full advantage of the current situation and made a killing in this offering. Though Goldman Sachs gets very important commodity i.e. cash required to bolster their capital, Buffet has benefitted himself with the correct timing of the deal to drive the maximum benefit out of it.

There is lot to learn from such deals entered. This deal also has returned the focus from common stock to debt which provides guaranteed returns (though somebody else then buffet getting such deal would be very rare apart from the promoters).

While looking at investments, only business ethics should drive it and not the emotion.

We also need to look whether common person has access to such deals in India. The deal is constructed very intellectually which has stock and debt option both meshed into each other and providing support in case of any situation.

The above deal gives guaranteed 10% returns at the same time allows to take benefit of the increasing share prices with a add-in warrants struck at specific price. (This warrant is nothing but call option purchased without paying any premium for the same) This is a master stroke by genius of Warren Buffet.

Friday, 19 September 2008

Biggest international heist in Financial History

Consider This

## Sometime back ##

(a) US denies Dubai Port company to takeover Us Ports company citing security reasons.

(b) Similar voices are heard against chinese companies too (though no official comment on the same)

# Still Sometime Back #

(a) sub prime crisis surfaces.

(b) Lot of financial institutions on shaky ground

(c) Spate of write off follow

(d) Bear stearn crisis, bail out done..

(e) US financial institutions need huge capital to bolster balance sheets.

(f) Fed action follows, credit & liquidity infused. lot of US financial institutions take capital infusion from chinese, Japanese & gulf (basically dubai based) companies.

(though could not verify which gulf company has invested in US Financial institution)

(g) Dollar depreciates, oil rises, world crisis looming.

*** Now ***

(a) US institutions crash

(b) Freddie & Fannie (biggest home mortgage companies) bailed out...

(c) Lehman follows same path.. US refuses bail out

(d) same fate announced for meryll & AIG but bail out package made.

(e) Oil prices decreasing despite hurricanes & Opec announcing reduction in production

(f) Dollar continues to strengthen against currencies

(g) One analyst finds out that biggest unsecured creditors of lehman brothers are Asian institutions!!!!!! (read this article in "from all street journal" in financial daily "mint")


What is the best way rob anybody?

Borrow---> Spend---> declare bankruptcy----> lender is finished.

Who is better off?

The person on whom the money is spent.

The person who borrows has nothing to lose as he is where he was earlier

Lender is punished...

Did same thing not happen with US markets? Did US government pull out biggest heist in financial history? Who lost most money in this turmoil? borrowers from those insitutions (i.e. US public who may not pay now to the lehman bros) or the ones who had faith in these institutions and lent them huge monies( Asian & other financial institutions)?

Why is dollar appreciating in such situation?