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Warren Buffett Gets an Unwanted Call from Goldman Sachs

Friday, 18 Mar 2011 | 1:57 PM ET

Warren Buffett's Berkshire Hathaway has been getting $1,369,863 a day from Goldman Sachs, so it's no surprise Warren Buffett isn't happy that flow of money is getting cut off.

Berkshire Hathaway CEO Warren Buffett
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Berkshire Hathaway CEO Warren Buffett

At the height of the credit crisis in September of 2008, Berkshire loaned $5 billion to Goldman by purchasing special preferred shares that pay an annual dividend of 10 percent, or $500 million. (That works out to almost $1.4 million a day.)

Under the deal, Goldman had the option of buying back those shares, in effect paying back the loan, for $5 billion plus a special one-time dividend of $500 million.

That, of course, would stop the ongoing annual dividends, and that's why Buffett has joked that he wouldn't answer the phone if he thought Goldman was on the other end of the line.

Today, with the permission of the Federal Reserve, Goldman is making that unwanted 'phone call' to Omaha.

In a news release, Goldman says it will buy back those preferred shares as of April 18 (Goldman had to provide 30 days notice) for "the stated redemption price of $110,000 per share, plus accrued and unpaid dividends."

A spokesman tells me Goldman will be paying Berkshire:

  • $5 billion principal for the preferred shares
  • $500 million one-time repayment dividend
  • $125 million in accrued dividends since the anniversary date in September
  • $24 million for the first 17 days of April
  • TOTAL: $5,649,000,000

For accounting purposes, Goldman's first quarter earnings will reflect a one-time preferred dividend of about $1.64 billion.

Buffett had been happy the Federal Reserve was slow in giving its permission for the Goldman payback, writing last month in his annual letter to shareholders, "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."

Berkshire still has warrants to buy $5 billion of Goldman common stock at $115 a share. With Goldman just under $160 a share today, that would generate a profit of just under $2 billion.

Current Goldman price:

Buffett has until 2013 to cash in those warrants, and has indicated he probably won't do that until close to the deadline.

Current Berkshire stock prices:

Class B:

Class A:

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