Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is set to earn $2 billion through Goldman Sachs Group Inc (NYSE:GS) warrants bought during the 2008 financial crisis, while the federal government was scrambling to stabilize the financial system.
Warren Buffett’s investment in 2008
During 2008, Goldman Sachs Group Inc (NYSE:GS) turned to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) to bolster capital and shore up market confidence when shares plunged after the Lehman Brothers’ collapse. Warren Buffett, Berkshire’s chairman and chief executive officer, invested $5 billion for a preferred holding and got warrants to buy $5 billion of stock for $115 a share.
Earlier in May, Warren Buffett had indicated Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s bets on Goldman Sachs Group Inc (NYSE:GS) and General Electric Company (NYSE:GE) helped bolster Berkshire’s reputation as the ‘800-number when there is really sort of panic in the markets’.
During 2008, Warren Buffett also agreed to invest $3 billion in General Electric Company (NYSE:GE) and got warrants expiring October 16 of this year. During the first quarter, Warren Buffett struck a deal to provide for cashless exercise of those contracts.
Buffett’s revised offer for Goldman
As reported earlier, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) Inc got an updated warrants agreement from one of its long term holdings, Goldman Sachs Group Inc.
The warrant held by Berkshire allowed the Omaha based company to buy 43.47 million shares of Goldman Sachs Group Inc (NYSE:GS) till October 1, 2013 at the price of $115. As per the previous agreement, the bank would have to compensate Warren Buffett’s empire in the form of cash for the difference between the current stock price of Goldman Sachs at that time and the exercise price ($115).
The revised changes to the agreement will give Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B). the number of shares of common stock equal in value to the difference between the average closing price over the 10 trading days preceding October 1, 2013 and the exercise price of $115 multiplied by the number of shares of common stock covered by the warrant.
Buffett poised to get $2 billion
The revised arrangement facilitated Warren Buffett to receive 13.2 million shares.
As a result of the revised agreement and with Goldman Sachs quoting at $159.85 last Friday, the Oracle of Omaha is set to earn approximately $2 billion from the 13.2 million shares.
Earlier Buffett told the Financial Crisis Inquiry Commission that the Goldman Sachs Group Inc (NYSE:GS) investment was a wager that Federal Reserve Chairman Ben S. Bernanke and then-Treasury Department Secretary Henry Paulson would do whatever it took to stabilize the economy.
