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Jacob Wolinsky
Jacob Wolinsky
Articles  | Author's Website |

Goldman Sachs Might Redeem Preferred Shares From Berkshire Hathaway

October 22, 2010 | About:

Goldman Sachs Group is considering repaying the $5 billion in preferred shares it received two years ago from Warren Buffett’s Berkshire Hathaway at the height of the economic crisis. This is according to someone “familiar” with the matter that refused to be identified.

News of Berkshire’s investment helped increase confidence in Goldman Sachs at a time of high uncertainty. In addition, it helped the company raise $5.75 billion in a stock offering a day later.

Goldman wants to repay the money because it now has much cheaper access to capital. Buffett demanded a 10% return on his investment in Goldman Sachs. However, the firm recently issued five year notes that only yield 2.95%.

A repayment isn’t likely to happen imminently because the bank requires approval from the Federal Reserve. The person wouldn’t say whether Goldman Sachs is already seeking the Fed’s consent.

Buffett also got warrants as part of the deal. If those warrants were exercised today it would give Buffett a profit of $2 billion. However, Buffett has stated that he wants to hold onto the warrants until they expire in 2013. Even if Goldman redeemed the $5 billion in preferred shares, Buffett would still be able to hold onto the warrants.

Fox Business News's Connell McShane recently commented on the possible repayment of the $5 billion.

Disclosure: None


About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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