Buffett Generates $3.7 Billion From Goldman Bet Made at Height of Crisis

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) has made about $3.7 billion, including paper profits, from its $5 billion investment in Goldman Sachs Group Inc. (GS) at the depths of the financial crisis in 2008.

Goldman Sachs today said it will pay $5.65 billion to redeem preferred stock it sold to Berkshire. The price includes the original investment, plus a 10 percent premium and first- quarter dividend. Berkshire still holds warrants to buy $5 billion of the New York-based bank’s common stock with a strike price of $115 per share, which have generated a paper profit of more than $1.9 billion, data compiled by Bloomberg show.

Buffett invested in Goldman Sachs following the collapse of rival securities firm Lehman Brothers Holdings Inc. Under terms of the deal, Omaha, Nebraska-based Berkshire collected a $500 million annual dividend on the preferred stake. Goldman Sachs closed at $159.96 today on the New York Stock Exchange, compared with $84.39 at the end of 2008.

Goldman Sachs’s redemptions are “unwelcome,” Buffett said Feb. 26 in his annual letter to shareholders. “After they occur, our earning power will be significantly reduced.”

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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