Financial markets showed some signs of stabilising on Wednesday, after Goldman Sachs Group Inc won three billion euros of backing from Warren Buffett’s Berkshire Hathaway Inc.
The investment renewed confidence that US financial firms will survive the credit crisis. Shares in Goldman, which has transformed itself from the biggest U.S. securities firm to the fourth-largest bank holding company, surged eight percent after the announcement.
The company also announced plans to sell 1.7 billion euros of common stock to the public. Goldman and Morgan Stanley earlier this week were granted approval to become bank holding companies, which would help them strengthen their balance sheets.
Though Buffett’s move appeared to quell some fears, it did not alleviate concerns about the effectiveness of the US government bailout and about the health of the broader economy.
It could also lead to new questions from lawmakers for Treasury Secretary Henry Paulson, a former co-CEO of Goldman Sachs. He and Federal Reserve Chairman Ben Bernanke are appearing before Congress for a second day Wednesday to brief lawmakers on the measure.
Their appearance on Capitol Hill Tuesday unnerved investors, who questioned whether lawmakers were beginning to doubt the necessity and form of the government bailout. The waiting was clearly causing worry in the credit markets, raising concern again about liquidity. Japan’s third-largest bank, Sumitomo Mitsui Financial Group, also plans to invest in Goldman, Japanese media reported.