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 Goldman Sachs Group Inc. (NYSE:GS) announced better-than-expected earnings Monday along with a plan to start paying back the $10 billion the firm received from the Treasury's Troubled Asset Relief Program, a move that could trigger a rush for larger banks to devise ways to repay TARP... perhaps prematurely.Goldman Sachs flexed its muscles last quarter; bringing in a $1.81 billion net profit in the first three months of the year compared with $1.51 billion net profit for the first quarter of 2008, while net revenue leap 13% to $9.43 billion. Both results surpassed analysts expectations of $1.60 per share and revenue of $7.09 billion, according to The Wall Street Journal. The bank also ranks numero uno in worldwide M&A advising to date. Part of the celebration -- as expected -- was Goldman's plan to repay the government after raising $5 billion to redeem TARP funds. CEO Lloyd Blankfein has been itching to pay back the federal government due to restrictions that TARP funds impose on financial institutions such as:
But how much interest Goldman Sachs' offering will elicit remains to be seen. As DealBook notes, "the capital markets have been virtually dead for months, so it is unclear how Goldman's stock offering will fare." Plus, it is unclear how much of its funds for repayment come from Goldman benefiting from American International Group Inc.'s (NYSE:AIG) bailouts. The timing of the repayment by Goldman could be premature for the bank, in spite of having a profitable quarter in stagnant economic conditions. After all the profits came after a major restructuring at the firm that included mass layoffs. "If you look at most of the conditions in place that forced TARP onto the banks, those conditions have not changed," Roger Freeman, an analyst with Barclays Capital also told DealBook. However, even if the bank chooses to repay anyone, it has been argued by Rochdale Securities analyst Richard Bove that it should be Warren Buffett of Berkshire Hathaway Inc. (NYSE:BRK.A). "You shouldn't be diluting existing shareholders to pay off TARP so you can pay management more money," he wrote. Goldman's repayment of TARP funds, if approved by the government, will be the sixth and the first one made by one of the larger bailed out institutions. So far five banks have repaid $353 million plus $5.4 million in dividends of the government's TARP. Those banks are:
Other banks will be announcing first-quarter earnings results over the next couple of weeks, and no doubt the question of repaying TARP will come up in conversation. While repaying TARP will surely make the public happy and may boost the markets momentarily, many experts believe these banks should be cautious that their plans to repay TARP are not too aggressive. Bank of America Corp. (NYSE:BAC) and Citigroup Inc. (NYSE:C) are under pressure to repay TARP, and both banks' CEOs have said they hope to repay it as soon as possible. With that in mind, it is highly doubtful that those banks could or even should repay TARP until the economy stabilizes. Even though Wells Fargo & Co. (NYSE:WFC ) has said it expects to report earnings of $3 billion and J.P. Morgan & Chase & Co. (NYSE:JPM) expects a profit, the repayment of TARP would not be easy to digest at this point in time due to their recent acquisitions of Bear Sterns, Washington Mutual and Wachovia, which are still being integrated. TARP, while full of restrictions, is there to help banks loan money and help rebuild the financial system, which at the moment is still being plagued by bank failures. There are a couple cliches that might be worth pointing out: "Haste makes waste" and "Good things come to those who wait." - Maria Woehr Also see: Bove to Goldman: Pay Buffett first
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Can't run from the fact it converted to a bank holding company and the public money which comes from that. Will it be replacing FDIC TLGP debt?