Goldman Sachs announced that it had reached an agreement to sell $5 billion of perpetual preferred stock to Berkshire Hathaway in a private offering. The preferred stock has a dividend of 10% and is callable at any time at a 10%premium.

In conjunction with this offering, Berkshire Hathaway will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, which are exercisable at any time for a five year term.

In addition, Goldman Sachs will raise $2.5bn of equity in a public offering.

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"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," said Lloyd C Blankfein, chairman and CEO of The Goldman Sachs Group. "This investment will further bolster our strong capitalization and liquidity position."

"Goldman Sachs is an exceptional institution," said Warren Buffett, chairman and CEO of Berkshire Hathaway, Inc. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."

The US Federal Reserve had allowed Goldman Sachs and Morgan Stanley to undertake commercial banking on Sunday.

• The US meltdown: Complete Coverage