WaMu watchers wait for announcement; Berkshire buys into Goldman; Constellation shareholders sue

By Aaron Hochman-Zimmerman

New York, Sept. 24 - Investors around the world could not pull themselves away from their television sets for another day as the Bush administration's financial wizards attempted to charm Congress for a quick approval of the $700 billion bailout.

Treasury secretary Hank Paulson "should've gotten some ducks in a line first," a market source said, although "he probably had no time."

Many are also fearful of a "potentially diminished bailout," a credit market trader said, as the market may be pricing in a $700 billion bailout.

"If they don't come out saying they're fully behind it, I'd be worried," he said about Congress.

While most of the action on Wall Street actually took place in Washington D.C., Goldman Sachs Group, Inc. and Berkshire Hathaway Inc. cut a deal to prop up the battered investment house.

Warren Buffett, one of the few big cash holders in the market, negotiated up to a $10 billion stake in the venerated Goldman Sachs.

Elsewhere, one of Buffett's other recent acquisition in these discounted times, Constellation Energy Group, Inc., was challenged by almost a half dozen shareholders.

The lawsuits filed against Constellation allege that the board ignored a better offer from a consortium of buyers that includes Electricite de France.

Another troubled bank, Washington Mutual, Inc., saw its stock sinking fast on Wednesday as it may have lived one of its last days as an independent entity.

Some investors expect the Seattle-based lender to announce the name of a buyer by the end of the week.

Also, as the White House and Capitol Hill battled over the particulars of the bailout plan, rumors circulated that NYSE Euronext chief executive officer Duncan Niederauer will extend the ban on short selling of certain financial-related stocks another 30 days, "most likely," a trader said.

Meanwhile, the Dow Jones Industrial Average ended lower by 29.00, or 0.27%, at 10,825.17, while the Nasdaq Composite Index managed to add 2.35, or 0.11%, to finish at 2,155.68.

The S&P 500 fell by just 2.35, or 0.20%, to close at 1,185.87.

WaMu moving lower

Many in the market watched WaMu continue its drop on Wednesday, which was the final day for bids to be entered in order to strike a deal with the struggling lender.

If acceptable bids are in by Wednesday, a buyer could be announced by Thursday and the transaction signed over the weekend, a market source said.

Names high in the running for WaMu include JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Toronto-Dominion Bank.

Shares of WaMu (NYSE: WM) were blasted for $0.94, or 29.38%, to close at $2.26.

Cash of the titans

Two of the biggest names in investing inked a deal late Monday amidst a backdrop of a building financial tempest.

Berkshire Hathaway will purchase $5 billion of perpetual preferred stock at a 10% yield and callable at a 10% premium from struggling giant Goldman Sachs.

Buffett's group will also receive warrants to purchase an additional $5 billion of Goldman Sachs' common stock at $115.00 per share over the next five years.

"We are pleased that given our longstanding relationship, Warren Buffett, arguably the world's most admired and successful investor, has decided to make such a significant investment in Goldman Sachs. We view it as a strong validation of our client franchise and future prospects," Lloyd Blankfein, chairman and CEO of Goldman Sachs, said in a statement.

"This investment will further bolster our strong capitalization and liquidity position," Blankfein added.

The move is in the classic Buffett style. He has purchased a large piece of an established and successful firm at a steep discount while other investors are frozen with fear.

Shares of Goldman Sachs (NYSE: GS) jumped up by $7.95, or 6.36%, to close at $133.00.

Shares of stock colossus Berkshire Hathaway (NYSE: BRK.A) added $4,500.00, or just 3.49%, to end the day at $133,300.00.

Stars aligned for Constellation?

As Buffett was on the move for Goldman Sachs, he was just wrapping up a $4.7 billion deal to file Constellation Energy under his MidAmerican Energy Holdings Co., another classic Buffett play.

The $26.50-per-share bid from MidAmerican was snapped up by Constellation, after shares dropped from a close of $59.14 just two weeks ago.

A market source noted a rash of lawsuits filed against Constellation for accepting the offer from MidAmerican alleging that the company did not seek negotiations with Electricite de France, which offered $35.00 per share.

EDF claims it is in a position to buy Constellation, and Maryland governor Martin O'Malley is willing to put the decision in the hands of the state's Public Service Commission.

Still, in the consortium of potential buyers, EDF would only make up 20% and therefore would not be a high approval risk, said Macquarie Capital analyst Angie Storozynski.

"It wouldn't be a problem," she said.

To be in Constellation's shoes "obviously, I prefer the higher bid," Storozynski said.

The question is whether or not Constellation's shareholders will accept the bargain-basement price Buffett offered.

Perhaps it will be rejected, or perhaps MidAmerican will raise its offer; "it's roulette," Storozynski said.

Shares of Constellation Energy (NYSE: CEG) slipped by $0.31, or 1.19%, to $25.80.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.