Goldman Sachs sold double the amount of stock it planned to sell in a public offering this morning as market confidence in the US investment bank grew, following a cash injection from Warren Buffett.

The American bank sold 40.65 million of shares at $123 each, raising $5 billion (£2.7 billion), twice the size of the public offering it announced yesterday. It said today that it has an option to sell an additional 6.1 million shares to handle the excess demand.

The shares were trading at $128.56, up $3.51, during the New York morning session.

Lloyd Blankfein, chief executive of Goldman Sachs, last night said he planned to raise up to $12.5 billion (£6.74 billion) of new funds by selling a stake to Mr Buffett and tapping other institutional shareholders.

The surprise move by Mr Buffett, which was welcomed by some but was described as “worrying” by traders in Hong Kong and Tokyo, is understood to have derailed a big stakebuilding exercise by Sumitomo Mitsui Financial Group, the Japanese megabank.

The Japanese group was planning to invest around $2.5 billion in Goldman and would have become the third Tokyo giant to swoop on Wall Street within 48 hours. In a flurry of deals that have seen Japan’s biggest financial houses burst out of their usual mode of conservatism, Nomura has clinched the European and Asian operations of Lehman Brothers, while Mitsubishi UFJ is hoping to secure a major stake in Morgan Stanley and a seat on its board.

Sumitomo Mitsui, which performed tit-for-tat capital infusions with Goldman Sachs in 1986 and 2003, is understood to have been in informal talks over a private placement of around $2.5 billion. Following the announcement of Goldman’s deal with Mr Buffett, however, Sumitomo Mitsui has scaled down its ambitions and is now discussing an injection of around $1 billion into Goldman in exchange for a more modest stake.

Souces close to Goldman told The Times that the emergence of Mr Buffett as a source of capital had “effectively written the Japanese out of the picture as the biggest players.”

Goldman Sachs, which this week abandoned its investment bank status to become a traditional financial institution, is seeking to bolster its balance sheet with new cash as the US Federal Reserve, its new regulator, demands that it reduces its borrowings.

Last night, Goldman Sachs said that it had agreed to sell $5 billion worth of preferred shares to Berkshire Hathaway, the investment group controlled by Mr Buffett. Berkshire Hathaway has also secured an agreement to buy another $5 billion worth of stock. At the same time, Goldman said it was planning to raise $2.5 billion from other investors.

While banks such as Goldman Sachs do not need to raise the capital, the group is seeking to address anxieties on Wall Street about the long-term future of financial institutions. However, Goldman is paying a hefty price for Mr Buffett’s stake, having agreed a 10 per cent coupon on the preferred stock. It is understood that Goldman can repurchase the shares from Mr Buffett at any time but at a 10 per cent premium.

In a statement, Mr Blankfein said: “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.”

This week Morgan Stanley and Goldman Sachs received approval from the US Federal Reserve to turn themselves into traditional banks, relinquishing their investment bank roles. The difference in definition has two main implications. The first is that it allows Goldman Sachs the right to access emergency funds from the Federal Reserve’s lending facility on the same terms as retail banks, and the second is that it comes under the scrutiny of America’s central bank, which demands more benign levels of debt.

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