Goldman Sachs Gets to Lose Berkshire Hathaway Liability (GS, BRK-A, BRK-B, GE)

Friday was D-Day at the Federal Reserve.  D-Day is Dividend Day where the government got tell which of the bailed out financial companies could begin rewarding shareholders again via higher dividends and large stock buybacks.

We covered the first batch of money-center banks which were given approval, but it is The Goldman Sachs Group, Inc. (NYSE: GS) that has the more unique “shareholder-friendly” capital approval that will give Warren Buffett and Berkshire Hathaway Inc. (NYSE” BRK-A, BRK-B) its investment capital back.  The Federal Reserve informed the company that it has no objection to the Company’s proposed 2011 capital actions: redemption in full of the 50,000 shares of the Company’s 10% Cumulative Perpetual Preferred Stock held by Berkshire Hathaway and its subsidiaries; repurchase of the outstanding common stock; and a ‘potential increase’ in the quarterly common stock dividend.

Goldman originally took in $5 billion from Warren Buffett during the financial meltdown.  It has notified Berkshire Hathaway that it will redeem in full the preferred shares.  The redemption’s stated redemption price is $110,000 per share, plus accrued and unpaid dividends to the redemption date.

Berkshire Hathaway continues to hold the warrant to purchase 43,478,260 shares of common stock that was purchased concurrently with the preferred shares back in October of 2008.

The redemption includes a one-time preferred dividend of about $1.64 billion, which will cut its  first quarter  earnings by about $2.80 per share. This action will also accelerate payable from April 1 to the redemption date, which will cut another $0.04 per share from earnings.

There is another idea to consider here.  General Electric Co. (NYSE: GE) also got the 10% preferred investment from Berkshire Hathaway during the financial meltdown.  Jeff Immelt said that he intends to pay Buffett back later this year to get out from under the 10% per year liability as well.  The timeline on GE’s payback may have just come closer.

JON C. OGG