Buffett dives into GE amid "economic Pearl Harbor"

By Jonathan Stempel

NEW YORK (Reuters) - Warren Buffett's $3 billion commitment to General Electric Co is the latest attempt by perhaps the world's most revered investor to dive into a beaten-down company he believes has staying power, despite a global credit crisis he calls an "economic Pearl Harbor."

The billionaire's insurance and investment company Berkshire Hathaway Inc announced the preferred stock investment as GE, whose shares have slid about one-third this year amid concern over its financial services operations, set plans to sell $12 billion of common stock.

It came just eight days after Berkshire invested $5 billion in Goldman Sachs Group Inc in a similarly structured transaction.

Buffett admitted that both investments could backfire if the U.S. Congress fails to pass a proposed $700 billion plan to help the nation's banking industry reduce its stockpile of bad mortgages and other debt. Unlike much of corporate America right now, Berkshire does not need to borrow to do big deals.

"What Buffett has been waiting for for years is finally happening: a period of sufficient market distress where he can negotiate terrific financial terms for Berkshire," said James Armstrong, president of Henry H. Armstrong & Associates in Pittsburgh. "He has been waiting for this for 10 years."

Omaha, Nebraska-based Berkshire agreed to buy $3 billion of GE perpetual preferred shares with a 10 percent dividend, generating $300 million of income a year.

Berkshire also gets warrants to buy $3 billion of GE common stock within five years at $22.25 per share, below its current level, and near the 5-1/2 year low it set on Sept 18.

"General Electric is the backbone of American industry," Buffett said on CNBC television. "They've become tainted as every company is that has to borrow a lot of money all the time. They're going to be around in five or 10 or 100 years from now and, if you buy at the right time, you'll probably make some money."