Once again proving that he is still very much on top of his game, heralded investor Warren Buffett has struck gold again – or more accurately, Goldman Sachs Group Inc. (GS) . On Sept 30 Buffett exercised a warrant stemming from a major loan he made to Goldman in 2008, and when he cashes it out at the end of September is expected to net approximately $2 billion in profit.
Goldman first approached the “Oracle of Omaha” in 2008 and asked him to sink money into their company bank to shore up investor confidence. While investors had become leery of the major investment banks like Goldman for engaging in highly, leveraged, overly risky trades that caused the financial crisis, Buffett retained the aura of a sure and steady presence who could inject much-needed capital and stability. Buffett agreed to invest in the bank, boosting confidence in the market overall, but especially Goldman.
As the investment was structured, Buffett was allowed to buy $5 billion in shares in Goldman at $115 a share, with warrants to restructure in the future.
In March 2013, Buffett exercised the warrant to defer cashing out, and instead get 13.2 million shares of the stock at $145 a share, foreseeing more profits to be made by holding onto Goldman longer.
Befitting the investor’s history of betting right, the bid worked. Buffett will cash out on the average share price of Goldman the last 10- days of September, which totals approximately $160 a share.
The $2 billion windfall is great news indeed for Buffett and stockholders in his holding company Berkshire Hathaway Inc. ($BRK.A). Buffett credited the success on the deal in his belief that the government “would not shirk on its responsibility” to take actions to stop the 2008 financial crisis.
Goldman was down 1 percent to hit $158.26 a share. Berkshire was down 1.05 percent to hit $170,400.56 a share.
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