Buffett may push, or be pushed, on Goldman

By Svea Herbst-Bayliss and Jonathan Stempel

OMAHA, Nebraska (BestGrowthStock) – When Warren Buffett speaks on Saturday to what could be 40,000 shareholders of his Berkshire Hathaway Inc (BRKa.N: ) (BRKb.N: ), a major topic is sure to be what America’s most famous investor thinks about Goldman Sachs Group Inc(GS.N: ), perhaps its most infamous bank.

Nineteen months ago, Buffett helped, however slightly, to restore a degree of calm in the markets when Berkshire invested $5 billion in Goldman.

Now investors worldwide are waiting to see what he will say about that investment, as Goldman defends against civil charges that it defrauded investors in a complex mortgage transaction, and as federal prosecutors mull possible criminal charges.

“There are certainly conflicts for him in this matter,” said David Volkman, chair of the University of Nebraska at Omaha’s department of Finance, Banking and Law. “People will want to know exactly what he has to say.”

Buffett told the Wall Street Journal in an interview that he will give “extensive and complete” replies to all questions about Goldman at Berkshire’s annual meeting.

Charlie Munger, Buffett’s long-time business partner who will also answer shareholder questions, has been more outspoken. While believing Goldman did not act illegally, he told the newspaper: “The whole damn industry has lost its moral moorings.”

Goldman shares fell 9.4 percent on Friday after news of a criminal examination surfaced, and after two analysts downgraded the stock.

In the two weeks since the U.S. Securities and Exchange Commission announced civil charges against the company and a vice president, Fabrice Tourre, Goldman’s share price has fallen by about one-fifth, wiping away $22.7 billion of market value.

For decades Buffett’s judgment and ethics have been considered virtually beyond reproach, as the 79-year-old turned many of his shareholders into multi-millionaires by buying well-run companies and sticking with them for the long run.

Known for frugality, Buffett has loudly criticized Wall Street’s enormous paychecks — he takes a $100,000 annual salary to run Berkshire — and made him a hero not just to his own investors but also to the investing public at large.

But just three weeks after a Harris Interactive poll designated Berkshire as America’s most admired large company, the Goldman investment puts Buffett on a potential collision course with Wall Street, where earnings have resumed their surge and paychecks are getting fatter.

HOW FAR WILL BUFFETT GO?

Several money managers who own Berkshire shares said they expect Buffett will stop short of harshly criticizing Goldman.

They note it has been a lucrative investment for him — Berkshire collects $500 million of dividends — and fear a dressing down could damage the economic recovery.

“Goldman’s job is not to be nice, it is to provide liquidity to the capital markets, which fuel the economy,” said an investor attending Berkshire’s meeting, who asked not to be named because Goldman is a regular trading partner.

“This Goldman bashing is playing well with the public but I imagine Warren is not going to buy into it because he understands what the bank is really there to do.”

Indeed the economy and recovery are on many investors’ minds. Among them is David Farmer, a purchasing manager from Dallas who owns Berkshire Class B shares and is attending his first annual meeting.

“I am looking for some reassurance on the economy,” Farmer said on Friday, as he took in sights in Omaha.

“I have done very well on my investments but I don’t think I am in a position to be overconfident.”

Volkman, the Nebraska professor, expects Buffett effectively to lay down the law — or at least his law — for Goldman.

“It is perfectly possible that Warren Buffett will call on Goldman Sachs to clean up shop,” he said. “He is very big on transparency and maybe he will want to see that increased.”

Investing Analysis

(Reporting by Svea Herbst-Bayliss and Jonathan Stempel; Editing by Ted Kerr.)

Buffett may push, or be pushed, on Goldman