Thursday, October 21, 2010

"Berkshire’s 70% Goldman Bonanza Explained" (BRK.B; GS)

From MarketBeat:

Let’s take another look at Goldman’s apparent desire to buy out Berkshire Hathaway, as outlined in The Wall Street Journal this morning.
The story provides a lot of information that one could say is from Goldman’s point of view. The reason: Warren Buffett will do just fine if he’s bought out, so he’s persuadable. The story had another aim: persuading the Federal Reserve to give the required thumbs up to any buyout.

To that end, the story said at one point that Goldman had “$173 billion in excess liquidity” and at another “$75.66 billion of shareholders equity.” Message: “We are flush, baby!”
Not only flush, but regulatorily extremely healthy. Those tough Basel III rules on the horizon? No problemo! Goldman will meet the rules and repaying Berkshire wouldn’t affect the important capital ratios envisioned in Basel III.

So, if the Fed is persuaded, how would Berkshire and Mr. Buffett do on their $5 billion investment as the sound of canons cascaded around Wall Street?
First off, he’s already gotten $1 billion in dividend payments. He gets 10% a year ($500 million) and the deal was struck two years ago. Even I can do that math. Each day the tally rises by $1.3 million.
The Journal story says Goldman has the option to redeem the preferred for $5.5 billion. So, to keep it clean, that means Berkshire would get its initial $5 billion back, plus $1.5 billion (dividends plus the 0.5B mentioned in the story). That’s a 30% return over two years....MORE
If you follow the link there are a  couple interesting comments.