What will Warren Buffett say about Goldman Sachs?
As news emerges that US prosecutors are considering launching a criminal investigation of Goldman, Lloyd Blankfein, its chairman and chief executive, needs to retain the support of the man who bolstered the bank during the financial crisis with a $5bn investment.
Thus, the timing of the annual meeting of Mr Buffett’s Berkshire Hathaway in Omaha this weekend could hardly be bettered. The Sage of Omaha has already promised to the Wall Street Journal that he will give “extensive and complete replies” to Goldman questions.
We all have a vote on the public judgment of Goldman’s conduct but Mr Buffett has preferential voting rights given not only his investment but his moral authority in business and finance.
The $5bn question is whether Mr Buffett sticks with his support of Mr Blankfein or Goldman, or whether he instead says the bank made ethical lapses. If he opts for the latter, then the position of Goldman’s senior management including Mr Blankfein will be severely weakened.
Mr Buffett’s sceptical views about investment banks are well-known and were heightened by his experience in the Salomon Brothers Treasury bond scandal of 1991. He was then forced to fly to New York and take charge of the bank from John Gutfreund, its chief executive.
Carol Loomis of Fortune, Mr Buffett’s longtime amanuensis, wrote an account of the saga here, and the video above shows Mr Buffett testifying to Congress about it. One quote from his testimony leaps out:
“The past actions of Salomon Brothers are presently causing our 8,000 employees and their families to bear a stain.”
Following last week’s testimony by Goldman executives including Mr Blankfein to a Senate subcommittee, Mr Buffett’s latest Wall Street investment is in danger of suffering the same problem.