The recession's biggest winner: Warren Buffet made an astonishing $10BILLION from the financial crisis

  • Buffett invested in well known companies at record lows in 2008
  • Investments acted as 'lifelines' to firms
  • His endorsement and confidence saw their stock prices rise
  • Sometimes special deals were created with buyback options making Buffett even richer
  • Oracle of Omaha: 'Be fearful when others are greedy, and be greedy when others are fearful’

By James Daniel

PUBLISHED: 12:24 EST, 7 October 2013 | UPDATED: 17:36 EST, 7 October 2013


For many, it was a period of financial turmoil as banks failed, stock markets tumbled and millions lost their jobs.

However, billionaire Warren Buffett kept on doing what he does best and began investing in a handful of blue-chip companies during the financial crisis.

Five years on and the value of those deals are clear for all to see, America’s second richest man earning another $10 billion thanks to his choice investments.

Shrewd: Billionaire Warren Buffett tossed lifelines to a handful of blue-chip companies during the financial crisis

Shrewd: Billionaire Warren Buffett tossed lifelines to a handful of blue-chip companies during the financial crisis

And I made this much! Five years later, the payoff on those deals is becoming clear: $10 billion and counting

And I made this much! Five years later, the payoff on those deals is becoming clear: $10 billion and counting

Buffet's boost: Berkshire Hathaway's investments are paying off. From an investment of $25bn dollars, almost $10bn in profits have been realized

Buffet's boost: Berkshire Hathaway's investments are paying off. From an investment of $25bn dollars, almost $10bn in profits have been realized

Although it proves that the rich are getting richer, it also confirms that wisdom of one of Mr Buffett's favorite investing maxims: ‘Be fearful when others are greedy, and be greedy when others are fearful.’

The fall of 2008, when the market was shaky and confidence was low, a number of stocks of companies that had decent reputations, were at record lows including Wells Fargo & Co. and American Express Co. 

 

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‘You make your best buys when people are overwhelmingly fearful,’ Mr Buffet said.

‘In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period,’ Mr. Buffett said in an interview to the Wall Street Journal, but few investors, if any, were able to navigate the choppy financial waters quite as expertly.

Sweet smell of success: Buffet decided to invest in a few major companies and is now seeing a profit of $10 billion and counting

Sweet smell of success: Buffet decided to invest in a few major companies and is now seeing a profit of $10 billion and counting

By comparison, the U.S. government invested about $420 billion through its Troubled Asset Relief Program.

The government also demanded beneficial terms and collected sizable dividend payments for a return of about $50 billion, or 12%, thus far, according to the U.S. Treasury's website.

The latest windfall for the Omaha, Nebraska billionaire and his conglomerate, Berkshire Hathaway Inc., came when candy maker Mars Inc. repaid $4.4 billion that its subsidiary, Wrigley, borrowed in 2008.

 That payment alone is expected to net Berkshire a profit of at least $680 million.

Mr. Buffett said he hopes to use the cash to make other big investments soon that will bring equally attractive returns. Berkshire will continue to buy stocks to add to its portfolio of over $100 billion, because ‘it's still better to have equities than cash,’ he said.

It all began with Mars in April of 2008, when credit markets began to tighten their belts, however, what meant even more to companies that were craving much-needed capital was Mr Buffet.

However In addition to much-needed capital, the companies acquired something equally valuable: Mr. Buffett's implicit endorsement of their long-term prospects. 

Call the midas touch if you will - shares of these companies generally went up after they revealed Berkshire's involvement.

In six major deals, Berkshire invested a total of about $26 billion. Mr. Buffett used Berkshire's gigantic cash hoard to move swiftly and exact lucrative terms that created a stream of payments from the borrowers.

Mr. Buffett's deal-making started in the early days of the crisis and continued deep into the recovery. The last of the deals was a 2011 loan to Bank of America Corp. for $5 billion.

Besides Mars and Bank of America, Berkshire made investments in Goldman Sachs Group Inc., Swiss Re Ltd., Dow Chemical Co., and General Electric Co.

Several deals are continuing to pay hefty dividends.

Cool head: When most panicked during the financial crisis, Warren Buffett invested

Cool head: When most panicked during the financial crisis, Warren Buffett invested

As the economy has recovered, and with credit available at more attractive rates, some of the companies have opted to redeem securities owned by Berkshire or adjust the terms in ways favorable to Mr. Buffett.

For example, Berkshire became one of Goldman’s largest shareholders with a $2.1 billion stake after the close of a five-year deal in which Berkshire injected $5 billion into the bank.

The deal required the bank to pay $500 million in annual dividends.

 When Goldman redeemed the shares in March 2011, it paid Berkshire an extra $500 million as a premium.

Berkshire helped Mars finance its $23 billion purchase of Wrigley.

Berkshire contributed $6.5 billion, including $2.1 billion for preferred stock in Wrigley that pays an annual dividend. Berkshire also bought an additional $1 billion of Wrigley debt later.

Tthe investment is expected to net Berkshire nearly $4 billion, including annual dividends and a prepayment premium since the bonds were due in 2018.

In another display of Mr Buffett's ingenuity, Berkshire invested $5 billion in Bank of America which adds about $300 million in annual pretax income.

The deal allowed Buffet to purchase another 700 million shares for an additional $5 billion at $7.14 a share.

Given the bank's current stock price at about $14, it would create a further profit of $5 billion.

When it comes to affairs of government Mr Buffett doesn’t believe holding congress to ransom is the way to pass legislation.

‘It makes absolutely no sense for politicians to use the debt ceiling as a threat to get their way on other legislation. It ought to be banned as a weapon. It should be like nuclear bombs, basically too horrible to use,’ he said in an interview with Fortune.

If Congress doesn’t increase the country's borrowing power by October 17, the government won’t have enough money to pay its bills, according to Treasury Secretary Jack Lew.

Defaulting on the nation's debt could trigger a global financial meltdown.

‘We will go right up to the point of extreme idiocy, but we won’t cross it,’ the Oracle of Omaha said last week.

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For him to make a gain somebody has to make a loss. He did not create anything.

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There's the risk when he invests lots.. but the return is high if he succeeds.. otherwise he lost even more

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What Mr. Buffet says is true, If you have the balls to take a risk in times of trouble then you are going to come out on top, but you have to also have a lot of investment collateral to invest in the first place. He's been at it for years, so any investment he makes is measured in billions and will make a big difference to any company's share price, with him on board as an investor.

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Traded Options and Futures, no doubt? Butterflies and Straddles? Anyone could do it, but you still NEED money to make money.

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PURE GREED $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

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What you mean to say is that because you do not know how to navigate the investment market uin the way he did means that he's greedy and you are not then.

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the guys a genius, but clearly not "anybody could have done this" as it did require 25billion in the first place!

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Very true but he has done it over and over and that is why he operates in Billions rather than smaller amounts

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Hats off to him he is a self made man and shrewd and I prefer him to Trump who has an air of arrogance about himself.

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Yes I prefer him to Trump too - Well put

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Anyone with money. Money makes money.

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Buffet is a very sinister man. Constantly battling for higher taxes and more restrictions while investing in struggling companies and lobbying Obama to bail them out leaving him with huge profits and giving Obama a nice campaign pot is all very shady stuff. Yet the democrat supporters love him.

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A great man who has given huge amounts of his wealth to charity. Anyone who says other wise has no knowledge of his history and actions. I only wish he was our chancellor of the exchequer !

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Nowe there's a good idea .............................Dear Prime Minister,..............

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