NEW YORK (
(GS - Get Report)
has repaid Warren Buffett's
the $5.5 billion that Buffett lent to Goldman during the crux of the financial crisis,
reported on Monday afternoon.
The $5.5 billion payment made by Goldman Sachs to Warren Buffett's Berkshire Hathaway covered $5 billion in preferred shares and a $500 million dividend payment.
Goldman Sachs' repayment of the big Buffett loan is not a surprise, and has been "a matter of time." There have been indications for months that Goldman Sachs was preparing to repay Buffett. In March, Goldman Sachs received approval from the Federal Reserve to buy back the preferred stock bought by Buffett in September 2008. Goldman paid an additional 10% penalty to redeem the shares and had previously indicated that April 18 would be the repurchase date.
Yet analysts who cover Berkshire Hathaway have viewed the Goldman Sachs repayment -- as well as another looming repayment of a financial crisis loan made by Buffett to
-- as a reflection of two key Berkshire Hathaway themes.
First, Berkshire Hathaway is not likely to again find investment opportunities similar to those offered by distressed financial companies during the credit crisis, limiting the upside in Berkshire Hathaway shares at a time when its returns have become much more market-like. Buffett has not tried to hide the effect that it becomes harder every year for Berkshire to outperform the S&P 500, and the one-time financial crisis deals offer no long-term solution.
Secondly, Berkshire has a huge cash hoard, estimated to rise to as much as $50 billion with the GE and Goldman repayments. Berkshire has never paid a dividend. Buffett has not given any indication that he has warmed to the idea of a dividend or share repurchase program. Berkshire watchers don't worry about Buffett finding acquisitions into which to ploy high levels of cash -- Buffett intends to spend $9 billion on chemicals company Lubrizol. However, Berkshire Hathaway watchers are concerned about Buffett's succession planning and how any new Berkshire CEO would manage the company's cash balance without Buffett's single-handed, deal-making prowess
Berskhire Hathaway shares declined on Monday by 1.3% as the broader equity markets tanked on the S&P negative take on U.S. long-term debt. Berkshire Hathaway shares have tumbled 4% in the past month since questionable trades made by David Sokol in Lubrizol shares led the former Buffett successor candidate to announce his resignation from Berkshire Hathaway.
>>View Warren Buffett's Portfolio
-- Written by Eric Rosenbaum from New York.
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