Goldman Sachs, the global investment banking and securities firm may repay back a $5 billion investment made by Warren Buffett's Berkshire Hathaway, The Wall Street Journal today reported, citing people familiar with the situation.
During the height of the global banking crisis, legendary investor Buffett had invested $5 billion in Goldman Sachs in September 2008, which was seen as a massive vote of confidence by Buffett in the 139-year old investment bank aimed at restoring investor confidence that had been shattered by Wall Street titans. (See: Warren Buffett invests $5 billion in Goldman Sachs)
Berkshire Hathaway had bought $5-billion worth of perpetual preferred stock from Goldman in a private offering, which will pay a 10-per cent dividend or $500 million a year. Goldman would however be able to buy back the stock any time, but at a 10 per cent premium.
Goldman has the option to buy back the preferred shares from Berkshire Hathaway by paying $5.5 billion, though the move would trigger a charge of $1.6 billion and require approval by the US Federal Reserve, the paper said.
The annual dividend of 10 per cent has already made Berkshire Hathaway richer by about $1 billion, or by more than $1.3 million a day.
With funds easily available in the debt market and sitting on a cash pile of $173 billion in ''excess liquidity,'' Goldman is looking to repay the costly investment, said the paper.
This was Buffett's first venture into investing in banks since his loss in 1987 when he paid $700 million for a 12-per cent stake in Salomon Brothers, which was later found to be involved in a trading scandal.
Berkshire Hathaway currently has stakes in Wells Fargo, American Express, Coca Cola, The Washington Post, MidAmerican Energy' and US railroad company Burlington Northern Santa Fe and a minority stake in BYD Co, China's largest maker of rechargeable batteries among others.