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Warren Buffett to get his money back from Goldman Sachs whether he likes it or not

March 19, 2011|By Walter Hamilton, Los Angeles Times

Much to Warren Buffett's chagrin, Goldman Sachs Group Inc. is about to give his money back.

The famed Oracle of Omaha invested $5 billion in Goldman Sachs at the height of the financial crisis in late 2008. It was a high-profile imprimatur done to buck up confidence in the world's financial system — not to mention, make a buck for Buffett's investors at Berkshire Hathaway Inc.

The investment succeeded on both counts but was costly for Goldman Sachs. The preferred shares paid a juicy 10% dividend.

Terms of the deal allowed Goldman to eventually redeem the shares at a 10% premium, and that's what it's doing after announcing Friday that it had gotten the requisite permission from the Federal Reserve.

The investment banking giant will fork over almost $5.65 billion. Buffett's profit through the life of the investment — the dividends plus the 10% repayment premium — totaled nearly $1.7 billion.

"Berkshire Hathaway's 2008 investment in Goldman Sachs was a major vote of confidence in our firm and we are very appreciative of it," a Goldman spokesman said.

The repayment relieves Goldman of a financial albatross, but losing the guaranteed 10% payout makes Buffett none too happy.

In his most recent annual report to Berkshire Hathaway investors, Buffett offered a lament that was only partly tongue-in-cheek.

"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," Buffett wrote, adding that he viewed the payback as "unwelcome" and "bad news."

Goldman also announced Friday that it might buy back stock and boost its dividend. Goldman shares rose $4.21, or 2.7%, to $159.96. Berkshire's "B" shares, which are widely held by individual investors, advanced 75 cents, or 0.9%, to $83.48.

walter.hamilton@latimes.com

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