I wonder why Buffett is willing to accept less than the government demanded of AIG. The feds took 850 over prime, which at the time was 11.4%. Buffett is willing to take 10%, but it is on preferred shares, so, depending on how the stock performs, he could earn substantially more. Nonetheless, GS is still very heavily leveraged:
In return, they will submit themselves to greater regulation, including limits on the amount of debt they can take on. When it collapsed, Lehman had about a 30:1 debt-to-equity ratio, meaning it had borrowed $30 for every dollar in capital it held. Morgan Stanley currently has a debt-to-equity ratio of 30:1, while Goldman Sachs has one of about 22:1.
Bank of America, on the other hand, currently has about an 11:1 leverage ratio, while JPMorgan has about 13:1 and Citigroup about 15:1. Because they can borrow less, bank holding companies typically have lower earnings multiples.
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GS is up 9 in pre-market trading. Tempting . . .
ReplyDeleteNaked Capitalism posts some thoughts on this:
ReplyDelete"And now that Goldman could in theory raise deposits to fund that activity, it would have an insurmountable cost advantage."