Covid-19 crisis: Warren Buffett cuts crisis-era bet on Goldman Sachs

Warren Buffett was willing to stand by Goldman Sachs Group Inc.’s side during the last economic crisis, at least for the right price. Now, he’s bailing out just as the pandemic throws the US economy onto uncertain terrain.

Berkshire Hathaway sold 84 per cent of its Goldman Sachs stock in the first quarter, marking a reversal for an investor who generally holds large stakes in the banking sector. It was one of the most notable changes in Berkshire’s more-than $180 billion portfolio in the period, as the bank underperforms the broader US market.

Buffett traces his relationship with Goldman Sachs back to a meeting with the bank’s longtime head, Sidney Weinberg, in 1940.

The billionaire investor routinely praised former Chief Executive Officer Lloyd Blankfein as he led the Wall Street firm through the last financial crisis. Then Berkshire started paring its stake during the last few months of 2019 — after David Solomon had succeeded Blankfein as CEO — and deepened that cut in the first quarter, nearly bringing the investment to an end.

“He has this historical relationship with Goldman, so maybe there’s some sentimental value,” said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business. “But of course, Buffett’s primary concern is efficient allocation of capital.”

Buffett’s set-up is different this time around. During the 2008 crisis, Goldman Sachs tapped Berkshire to invest in preferred stock, offering a 10% annual dividend and warrants. Buffett said in 2009 that, while he had a good relationship with the bank, it was primarily the terms that attracted him. Those preferred shares are long gone. Berkshire now holds only common stock in the lender, a stake that dwindled to 1.92 million shares at the end of the first quarter, from a high of more than 18 million shares. It’s not known if or how the stake may have changed since then.