Buffett embroiled in controversy over his Goldman investment

Omaha :  When Warren Buffett would be speaking late yesterday to thousands of his Berkshire Hathaway shareholders, a major topic was expected to be what America's most famous investor thought about Goldman Sachs Group, perhaps its most infamous bank.

Nineteen months ago, Buffett helped, however slightly, to restore a degree of calm in the markets when Berkshire invested $5 billion (Dh18 billion) in Goldman.

Investors worldwide waited to see what he would say about that investment, as Goldman defends against civil charges that it defrauded investors in a complex mortgage transaction, and as federal prosecutors mull possible criminal charges.

"There are certainly conflicts for him in this matter," said David Volkman, chair of the University of Nebraska at Omaha's department of Finance, Banking and Law. "People will want to know exactly what he has to say."

‘Extensive replies'

Buffett told the Wall Street Journal in an interview that he would give "extensive and complete" replies to all questions about Goldman at Berkshire's annual meeting.

Charlie Munger, Buffett's long-time business partner who was also answering shareholder questions, has been more outspoken. While believing Goldman did not act illegally, he told the newspaper: "The whole damn industry has lost its moral moorings."

Goldman shares fell 9.4 per cent on Friday after news of a criminal examination surfaced, and after two analysts downgraded the stock.

In the two weeks since the US Securities and Exchange Commission announced civil charges against the company and a vice-president, Fabrice Tourre, Goldman's share price has fallen by about one-fifth, wiping away $22.7 billion of market value.

For decades Buffett's judgment and ethics have been considered virtually beyond reproach, as the 79-year-old turned many of his shareholders into multi-millionaires by buying well-run companies and sticking with them for the long run.

Known for frugality, Buffett has loudly criticised Wall Street's enormous paycheques — he takes a $100,000 annual salary to run Berkshire, and made him a hero not just to his own investors but also to the investing public at large.

But just three weeks after a Harris Interactive poll designated Berkshire as America's most admired large company, the Goldman investment puts Buffett on a potential collision course with Wall Street, where earnings have resumed their surge and paycheques are getting fatter.