Goldman Sachs Group Inc is considering repaying the $5 billion investment it received two years ago from Warren Buffett’s Berkshire Hathaway Inc, said a person familiar with the company’s plans.
A repayment isn’t likely to happen imminently because the bank requires approval from the Federal Reserve, said the person, who declined to be identified because the deliberations aren’t public. The person wouldn’t say whether Goldman Sachs is already seeking the Fed’s consent. The Wall Street Journal reported earlier today on the possible repayment.
Goldman Sachs turned to Buffett, the second-richest American and a cult figure in the investing world, to shore up the investment bank’s capital and restore market confidence after its stock tumbled and borrowing costs spiked following the September 15, 2008, collapse of Lehman Brothers Holdings Inc. News of Berkshire’s investment also helped Goldman Sachs raise $5.75 billion from a stock offering a day later.
Chief Executive Officer Lloyd Blankfein, 56, repeatedly invoked the deal with Buffett, announced on September 23, 2008, as evidence that Goldman Sachs wasn’t relying on government funds received from the US Treasury a few weeks later. And Buffett, 80, praised Blankfein’s leadership after Goldman Sachs was sued for fraud by the Securities and Exchange Commission in April. The case was settled in July for $550 million.
$500 million cost
Goldman Sachs, the most profitable securities firm in Wall Street history, would like to retire the preferred shares it sold to Buffett at the height of the financial crisis and replace them with a cheaper form of capital, the person said. Refunding Berkshire would also free Goldman Sachs’s top executives from a requirement that they retain 90 percent of the stock they own in the New York-based company.
David Wells, a spokesman at Goldman Sachs, declined to comment. Carrie Kizer, a spokeswoman for Omaha, Nebraska-based Berkshire, didn’t immediately return messages seeking comment. Berkshire’s stake gets a 10 percent dividend, costing Goldman Sachs $500 million a year. By contrast, the $2.25 billion of five-year notes the firm issued in July yield 2.95 percent, according to data from Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The firm held $173 billion in cash and other easy-to-sell assets at the end of September.
