Goldman to redeem Buffett's $5 billion perpetual stock
19 Mar 2011
Goldman Sachs Group Inc will redeem $5 billion of perpetual stock it had issued to Warren Buffett at the height of its bankruptcy, ending a costly deal that helped the merchant bank stay afloat.
The "perpetual" preferred stock, which cost Goldman Sachs 10 per cent in dividend payments a year, has a redemption clause at 10 per cent premium.
The investment had assured the `Oracle of Omaha' a cool $500 million a year in dividend since late 2008. Buffett's Berkshire Hathway is estimated to have gained around $1.7 billion through the life of the investment, including dividends and redemption payments.
On Friday, Goldman announced that it has received the requisite permission from the Federal Reserve for the stake buy-back.
Goldman Sachs will fork out around $5.65 billion. The redemption will cost Goldman Sachs $1.6 billion in first-quarter earnings, including the 10 per cent premium. The transaction will also reduce Goldman Sachs earnings per share for the first quarter by about $2.80, and another 4 cents for accelerated dividends.
"Berkshire Hathaway's 2008 investment in Goldman Sachs was a major vote of confidence in our firm and we are very appreciative of it," Goldman said in a statement.
Buffett greeted the redemption move with skepticism and lamented the loss of revenue.