Warren Buffett's Berkshire to invest $5 billion in Goldman Sachs

Berkshire Hathaway, led by the 78-year-old billionaire, is set to buy $5 billion of perpetual preferred stock with a 10 percent dividend. Berkshire will also get warrants to buy $5 billion of common stock at $115 a share at any time in the next five years.

"It's a vote of confidence which is gold plated," Michael Holland, a money manager at Holland & Co in New York told Reuters. "You don't get better than this."

In addition to raising money from Buffett, Goldman said it plans to sell at least $2.5 billion of common stock to the public. It will be the firm's first common stock offering since 2000.

Shares of Goldman rose 8.1 percent after the announcement, while Standard & Poor's 500 futures gained 15 points. Goldman Sachs' shares had been tumbling ahead of the announcement of the government rescue plan last Friday as investors feared it could face the same kinds of funding squeezes as Bear Stearns and Lehman.

On Sunday, Goldman won Federal Reserve approval to become a bank holding company, giving it easier access to financing and adding to speculation it might buy another bank.

This came after many investors questioned its business model amid this month's market turmoil, causing shares to fall 50 percent from their record set last Oct. 31.

"Goldman Sachs is an exceptional institution," Buffett said in a statement. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of out performance."

Buffett is the second-richest American according to Forbes magazine, and built Berkshire into a $199 billion conglomerate by investing in undervalued companies with strong management.

On Sept. 14, the No. 4 investment bank, Lehman Brothers, filed for the largest bankruptcy in U.S. history, weighed down by fouled commercial real estate holdings and a loss of faith from investors, and on the same day ailing Merrill Lynch & Co. arranged a hasty deal to be bought by Bank of America Corp.

Wall Street's troubles came as a freeze-up in credit markets threatened to clog the global financial system. The U.S. government arranged an $85 billion loan last week to rescue the huge insurer American International Group Inc and is seeking approval from Congress to buy back some $700 billion in bad mortgages and other toxic debts from financial institutions.