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Under the deal, Berkshire (NYSE: BRK) will earn a 10% dividend on the shares, which are callable at a 10% premium. The diversified holding company -- also parent of insurance and reinsurance units such as Geico, General Re and National Indemnity -- also would receive warrants to purchase $5 billion of common stock at $115 a share at any point in the next five years.
Buffett, Berkshire's chairman and chief executive officer, called Goldman (NYSE: GS) "an exceptional institution" and said in a statement that it had "an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."
The investment came two days after Goldman received clearance to be regulated as a bank holding company by the Federal Reserve. Long-established as among the largest investment banks on Wall Street, the move by Goldman would require it to comply with Fed rules regarding liquidity, capital adequacy and leverage. However, it also would qualify the firm to access the Fed's discount window and allow it to take insured bank deposits.
"While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding," Goldman Chairman and CEO Lloyd C. Blankfein said in a statement.
Most members of the Berkshire Hathaway Insurance Group currently have Best's Financial Strength Ratings of A++ (Superior).
On the morning of Sept. 24, Berkshire's A shares were trading at $133,200, up 3.42% from the prior close. Shares of Goldman Sachs were up 3.11% to $128.94.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
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