Goldman to Buy Buffett's $5 Billion Preferred Shares

Friday, 18 Mar 2011 02:11 PM

 

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Goldman Sachs Group Inc. will buy back $5 billion of preferred stock that it sold to Warren Buffett's Berkshire Hathaway Inc. at the height of the financial crisis in 2008, ending a trade that famously netted Buffett more than $15 a second in dividends.

The buyback has been expected for some time, given the relatively unfavorable terms for the investment bank.

Goldman is paying a 10 percent premium to buy back the shares, accrued and unpaid dividends and a one-time preferred dividend of $1.64 billion. The reason for that preferred dividend was not immediately clear, and a Goldman spokesman was not available to comment.

The trade was a huge sign of confidence in Goldman's ability to survive during the financial crisis — and the firm had to pay handsomely for Buffett's seal of approval.

Buffett lamented the likely redemption of the shares in his annual letter to shareholders last month.

"Goldman Sachs has the right to call our preferred on 30 days notice, but has been held back by the Federal Reserve (bless it!), which unfortunately will likely give Goldman the green light before long," he wrote in the letter.

Berkshire will continue to hold a warrant to purchase nearly 43.5 million shares of Goldman stock, which it bought at the same time as the preferred shares.

Goldman said it received approval for the buyback from the Federal Reserve, which also cleared Goldman plans to potentially buy back stock and raise its dividend this year.

Goldman shares rose 2.7 percent in afternoon trade to $159.91. Berkshire's class A and class B shares both rose about 1.1 percent, to $125,345 and $83.68 respectively.

The deal is expected to reduce reported earnings per share for the first quarter by about $2.80 a share, plus another 4 cents per share for accelerated dividends.

The preferred shares carried an annual dividend of 10 percent, meaning that buying back the securities will save the investment bank about $500 million a year.

© 2014 Thomson/Reuters. All rights reserved.

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