Berkshire Hathaway Currently Up $3.7 Billion on Their Investment in Goldman Sachs

Goldman Sachs 5 year chart - March 2011At the height of the financial meltdown of 2008, Berkshire Hathaway made a $5 billion investment in Goldman Sachs that was a major vote of confidence for the reeling financial firm.

Earlier this week, Goldman Sachs received permission from regulators to spend $5.65 billion to buy back Berkshire Hathaway's investment.

The reason? Berkshire Hathaway's preferred shares in Goldman Sachs entitled the conglomerate to an annual dividend of $500 million. That's a great deal of money to be paying out each and every year, and Goldman Sachs finally decided that they had had enough. An annual dividend of $500 million translates into nearly $1.4 million a day, or $16 every second.

Warren Buffett is naturally bummed out that Goldman Sachs is buying Berkshire Hathaway out of their position, but don’t feel too bad for the "Oracle of Omaha" - Berkshire Hathaway and its shareholders made out very well in this investment.

How well?

To start, Berkshire Hathaway received approximately $1.25 billion in dividends from Goldman Sachs from the fall of 2008 until now.

On top of that, Berkshire Hathaway is receiving a $500 million early repayment fee from Goldman Sachs, in addition to the return of their original $5 billion investment. We're up to a profit of $1.75 billion for Berkshire Hathaway.

Lastly, Berkshire Hathaway still holds warrants to buy 43.5 million common shares of Goldman Sachs at a price of $115 per share anytime before the fall of 2013. Goldman Sachs is currently trading at $160 per share, so that is an additional unrealized profit of $1.96 billion. (note: Buffett has indicated that he probably won't cash in on these warrants until sometime near the 2013 deadline).

So, as it stands right now, Berkshire Hathaway is up roughly $3.7 billion on their original $5 billion investment. That's a 74% return in roughly 2 1/2 years - quite the return, even for the famed Warren Buffett.

Sure, Berkshire Hathaway certainly received a sweetheart deal from Goldman Sachs in the fall of 2008. Why wouldn’t they have? Combine a reputation that has taken a lifetime to cultivate with a reeling firm's desperate need for a vote of confidence (and capital) during a very black time for the global economy, and boom - a sweetheart deal for Berkshire Hathaway was born. If you had the sterling reputation of Warren Buffett and $5 billion to invest, then you could have gotten the same deal as well.


Warren Buffett bought when everyone else was selling during the fall of 2008, and it paid off big for Berkshire Hathaway.

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