Buffett's firm invests in Goldman

Warren Buffett praised Goldman Sachs

Berkshire Hathaway, the company owned by US investment guru Warren Buffett, has bought $5bn (£2.7bn) worth of Goldman Sachs shares.

Mr Buffett, the world's most famous investor, said Goldman was an "exceptional institution".

Hit by the crisis that has engulfed other major US financial institutions, it was forced to change its status from an investment bank this week.

Goldman Sachs said the deal would bolster its finances.

Berkshire Hathaway is buying $5bn of preferred stock bearing a 10% annual interest rate.

This is very expensive money for Goldman, not least because if it wants to buy Buffett out, it has to pay a 10% premium Robert Peston, BBC business editor Read Robert's thoughts in full

It could increase its holding of Goldman shares as, under the terms of the deal, it has the option of buying $5bn of common stock for $115 per share at any time in the next five years.

In addition, Goldman Sachs said it was raising at least $2.5bn in common equity in a public offering.

Goldman said it was pleased that Warren Buffett had made such a significant investment.

"We view it as a strong validation of our client franchise and future prospects," said chairman and chief executive Lloyd C Blankfein.

"This investment will further bolster our strong capitalisation and liquidity position."

But BBC business editor Robert Peston rejected the notion that Warren Buffett's move was a vote of confidence in the US investment banking system.

"He's demanded and is receiving a lovely 10% dividend, which means he views Goldman as a high-risk investment," Mr Peston said.

"This is very expensive money for Goldman, not least because if it wants to buy Buffett out, it has to pay a 10% premium."