Goldman To Buy Back Buffett’s Preferred Shares

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After the approval of the U.S. Federal Reserve, investment bank Goldman Sachs Group Inc. said that it would buy back some $5billion worth of preferred stocks from Warren Buffett, ending the “costly” deal that has helped the company surge past the financial crisis.

Investment bank Goldman Sachs Group Inc. over the weekend announced plans to buy back some $5billion worth of preferred stocks from Warren Buffett, ending the “unfavorable” deal that has helped the company surge past the financial crisis.

According to reports, Goldman will pay 10 percent premium or at least $1.6 billion to buy back the shares from Buffett. The transaction is also expected to cut down the investment bank’s earnings per share to about $2.80 – plus 4 centavos for accelerated dividends – for the first quarter of this year.

Goldman is paying Berkshire Hathaway Inc. at least $500 million a year in dividends or $15 per second in exchange for Buffett’s seal of approval that Goldman would survive the financial crisis.

The Federal Reserve, the U.S. central bank, has approved Goldman’s plan to buy back stock and raise its common stock dividend in 2011.

In a statement, Goldman expressed gratitude to Berkshire’s confidence at the height of the recession in 2008, but said that it wants to cut down the costly deal as agreed with the terms of agreement in 2008.

In his annual letter to stockholders in February, Buffett lamented the impending redemption of his shares to Goldman, saying that “it is the company’s right to call our preferred shares on a 30-day notice.”

But Buffett said that the Berkshire will continue to hold a warrant to purchase at least 43.5 million stocks from Goldman, which it had bought along with the preferred shares.

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