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March 24th, 2009

Goldman Could Return TARP $ Next Month



The New York Times reports that Goldman Sachs is planning to repay their $10 billion in TARP money far sooner than expected — perhaps even as soon as next month. Whether you believe the AIG bonuses were irresponsible and unethical, or that the government merely created a dog-and-pony show to distract taxpayers from Congress’ mass spending, the firm’s bonuses have certainly stirred up a lot of adverse reactions.

Bottom line, the extreme reaction by the government to the salary restrictions has a lot of firms thinking they’d be better off alone:

“It’s just impossible to run our business in this environment,” said one senior Goldman executive who insisted on not being quoted by name for fear of crossing the Treasury Department.”

While many smaller banks have already been able to either repay or even reject the financial support, the original nine institutions who received the TRAP funds are doing everything they can to repay the cash and return to their “normal” operating structure — a goal  that could harm some institutions if they do so before they’re ready:

“The near daily announcements over the past two weeks, by money-center banks and finance companies, that they are making money this year on an operating income basis, have become borderline irresponsible, relative to continued deterioration in value of the assets on their balance sheets and the continuing impact of a worsening recession,” [Daniel Alpert, a managing director of Westwood Capital] added.

If Goldman can repay their portion of the TARP money before their counterparts it will be good news for taxpayers, but will it be good news for the others operating under TARP’s control?

If Goldman is able to pay back their portion it would signal that the firm is well capitalized and ready to lend. If the House bill that would tax executive bonuses at TARP banks up to 90% goes through, Goldman would be immune from that clause, making the firm an even more attractive target for the best talent looking to get out from under the government’s umbrella. Moreover, an independent financial institution would undoubtedly attract much more confidence these days than a brand that is growing increasingly toxic.

If Goldman Sachs is able and ready to return their TARP money in the coming months, is it possible that the government could persuade them to keep the money, much in the same way they convinced them to take it?

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3 Responses to “Goldman Could Return TARP $ Next Month”

  1. Rebecca Wilder Says: March 24th, 2009 at 11:02 am

    Hi Tim,

    They wanted to return TARP before the AIG bonus hooplah even started. This is just good media coverage to get what they originally wanted.


    Best and good post! Rebecca

  2. Tim Manni Says: March 24th, 2009 at 11:16 am

    Hey Rebecca,

    I think you’re on to something with the media coverage…The NY Times article I linked to actually said Goldman (who has a “well-known reputation for secrecy”) “held a conference call with journalists last week to try to dispel what it said was a myth about its exposure to A.I.G.” They are pushing their solvency.

    This anti-TARP $ sentiment began as soon as Paulson forced the money on them. I’ll definitely check out that post, thanks.
    Good to hear from you,

  3. Stress Testing Brands-The Results Says: May 8th, 2009 at 8:56 am

    [...] Goldman Could Return TARP $ Next Month (hsh.com) [...]

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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