The value of the Goldman Sachs warrants Warren Buffett bought for Berkshire Hathaway reportedly has dropped by a little more than $1 billion in just 24 hours, as the common stock plunged almost 13 percent to close at $160.70 on Friday.
Buffett received the warrants as part of a deal he made with Goldman Sachs in late September of 2008 in which the investment bank agreed to pay a 10 percent annual dividend on $5 billion of perpetual preferred stock Buffett purchased, CNBC reports.
In effect, Berkshire gave Goldman a massive loan, one that greatly benefited Buffett’s company when Goldman participated in the Obama administration’s Troubled Asset Relief Program (TARP). In fact, the deal made Berkshire the fifth largest beneficiary of TARP funds.
It also gave Berkshire the right to buy $5 billion of Goldman’s common stock at $115 a share at any time in the following five years.
Buffett’s Goldman warrants still have a current value of $1.987 billion, keeping them on the profit side of billionaire investor’s ledger.
Moreover, Buffett has said he plans to keep the warrants until close to their expiration in 2013, so there's time for the stock to make up recoup the loss it experienced when the SEC allegations hit the headlines.
Goldman shares dropped 13 percent immediately following the SEC charges, The Wall Street Journal reports. According to an estimate by Linus Wilson, who teaches finance at the University of Louisiana, Lafayette, Buffett's warrants likely lost just 3.3 percent.
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