Goldman Sachs is considering paying back the $5 billion investment of Warren Buffett's Berkshire Hathaway Inc that bolstered the securities firm during the worst of the financial crisis, a report has said.
Quoting people familiar with the situation, the 'Wall Street Journal' said, "It isn't clear if executives at the New York company have sought formal Fed approval yet, but they are looking closely at whether to use a small chunk of the firm's $173 billion in excess liquidity to unwind the investment."
One reason for the potential move is the hefty dividend payments of 10 per cent a year on Berkshire's "perpetual" preferred shares have cost Goldman about $1 billion so far, the Journal said.
Goldman could also replace the costly capital from Berkshire with much cheaper funding now available in the debt markets, the newspaper said.
Now that it is emerging from the crisis, Goldman has a comfortable financial cushion that includes $75.66 billion of shareholders' equity at the end of the third quarter. Such capital is a key indicator of Goldman's ability to withstand losses.
Referring to deployment of the firm's excess capital and liquidity, Goldman chief financial officer David Viniar had said, "Our hope is that we are finding opportunities to use it."
Repaying the $5 billion investment also would remove restrictions that prevent Goldman chief executive Lloyd Blankfein, other top Goldman executives and their spouses and estates from selling more than 10 per cent of their shares in the firm.
Berkshire's investment in Goldman came shortly before the US government launched the Troubled Asset Relief Programme in a move to pump capital into banks and other financial institutions, including Goldman, mostly through the purchase of preferred shares by the treasury department.
In mid-2009, Goldman repaid its $10 billion TARP infusion. That generated a profit for the US government, while freeing Goldman from restrictions to repurchase other referred stock or its common shares.
