BREAKINGVIEWS - Goldman shareholders bow to Buffett, Uncle Sam

Tue Mar 22, 2011 11:20am IST

Billionaire investor Warren Buffett is seen in New York, November 12, 2009.  REUTERS/Mike Segar/Files

Billionaire investor Warren Buffett is seen in New York, November 12, 2009.

Credit: Reuters/Mike Segar/Files

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-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

By Antony Currie

NEW YORK (Reuters Breakingviews) - It makes sense that Warren Buffett should secure the best return among the three big Goldman Sachs (GS.N) crisis supporters. After all, he was first to kick in to the roughly $25 billion of new capital the Wall Street firm raised in 2008 and 2009. More surprising is how well the U.S. government did and how Goldman shareholders brought up the rear.

As first one in, Buffett's Berkshire Hathaway won some juicy concessions: a 10 percent annual dividend, a 10 percent bonus should Goldman redeem the preferred shares early and warrants currently worth around $2 billion. Now that Goldman is about to buy back his $5 billion in preferred stock, the Sage of Omaha is sitting on an annualized return of 34 percent.

American taxpayers were the last ones to come to Goldman's aid. The U.S Treasury bought $10 billion of preferred stock under the Troubled Asset Relief Program a few weeks after Buffett's late-September pounce emboldened investors to buy $5 billion or so of common stock.

The United States was also the first to get its money back. By July 2009, Goldman had repaid the $10 billion, handed over $318 million in dividends and forked out $1.1 billion to redeem the Treasury's warrants. All in, the government generated a 23 percent annualized return.

Compare that to investors who bought shares in Goldman's secondary offering in September 2008. Any who sold at the same time the government exited would have made a 33 percent return. And those who bought more Goldman stock at crisis lows just above $50 a share would have made a killing.

But those who only bought, and still hold, common shares from the September 2008 sale have fared the worst. Goldman's stock currently sits just below the price where it was trading when U.S. taxpayers took their leave. Even after folding in dividend payments, the annualized return for shareholders over those two-and-a-half years drops below 15 percent.

That's not bad, though still worst among the Goldman rescuers. Of course, before the grumbling gets too loud, shareholders should remember that without Buffett and taxpayers, they might well have been considerably worse off.

CONTEXT NEWS

-- Goldman Sachs received approval from the Federal Reserve to buy back $5 billion in preferred stock bought by Warren Buffett's Berkshire Hathaway in September 2008. Goldman will have to pay a 10 percent penalty to redeem the stock, which it expects to do on April 18. The firm said on March 18 it would take a charge of $1.64 billion, reflecting the difference between the $3.86 billion carrying value of the preferred shares on Goldman's balance sheet and the $5.5 billion the bank has to pay to redeem them.

(Editing by Jeffrey Goldfarb and Martin Langfield)

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