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By Jason Stipp | 04-29-2010 11:18 AM

The Berkshire-Goldman Connection

Morningstar's Paul Larson puts Berkshire's Goldman investment into perspective.

Jason Stipp: I'm Jason Stipp for Morningstar. When the SEC revealed its civil indictment against Goldman Sachs a couple of weeks ago, naturally the Goldman Sachs stock dropped, but, interestingly, so did Berkshire Hathaway. Now, you might recall that Berkshire Hathaway took an investment in Goldman Sachs in the midst of the crisis. So the question arises, what is the nature of this connection? And what does it mean for investors?

Here with me, to dig into that, is Morningstar's Paul Larson. He is an equity strategist and the editor of Morningstar StockInvestor. Paul, thanks for joining me.

Paul Larson: Thanks for having me.

Stipp: So take us back to September 2008, first of all, and remind us, what was the nature of the investment that Berkshire took in Goldman? So that we can understand this relationship.

Larson: At the height of the crisis, Berkshire Hathaway invested $5 billion into Goldman Sachs, into Goldman preferred stock. And Berkshire received a 10% coupon on that particular investment, a very attractive investment for Berkshire Hathaway. And then, also as part of that deal, almost as a throw-in, Berkshire received the right to buy 43.5 million shares of Goldman at $115 a share. And those were just barely in the water right when the deal was struck. But with the market rebounding, and Goldman rebounding, that particular investment has grown immensely for Berkshire.

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