Goldman Sachs wants to give back TARP money, but can it?

Posted Feb 6th 2009 10:25AM by Lita Epstein
Filed under: Money and Finance Today, Goldman Sachs Group (GS), Amer Intl Group (AIG), Wells Fargo (WFC), Financial Crisis

Goldman Sachs (NYSE: GS) doesn't like to be told what it can or cannot do by the President of the United States, so it now wants out of the TARP program. David Viniar, Goldman's chief financial officer told attendees at a Credit Suisse conference on Wednesday that he would like to pay back the government. However, the big question is: Can Goldman raise the funds to pay back the $10 billion in capital the company took from the government last fall?

The money looked very good to financial companies. Goldman and the other banks saw it as a cheap way to raise capital and steady the ship. There's a huge catch, though. In order to pay back those funds, the company must raise new equity capital to buy out the government's stake in the bank.

James Ellman, head of San Francisco-based Seacliff Capital, a hedge fund specializing in financial services, told CNN, "What it really comes down to is Goldman Sachs does not have control of its own destiny. The President of the United States does and the President of the United States will tell us in 3 or 4 days what Goldman Sachs' options are."

We've all recently heard of one condition -- the President has placed a salary cap of $500,000 for executives in banks that took TARP cash until they pay back the funds. Given that each of the banks lost billions, it's hard to understand why they should be rewarded with higher salaries, but you can be sure that none of the banking executives liked that news. Fellow blogger, Ted Allrich, details other provisions in the current TARP contract.

Also, the banks can't continue holding their lavish parties. Recently we've seen AIG (NYSE: AIG) and Wells Fargo (NYSE: WFC) cancel or revise their meeting plans. The banking industry has gotten used to spending millions on parties to reward their best sales people or others who drive business to the firm. They don't like having to live like the rest of us. The reality is, of course, that when they need to come begging to the government for funds, they should be forced to tighten their belts just like the rest of us.

Mark Lane, an equity research analyst at William Blair & Co, questioned whether Goldman Sachs is financially sound enough to go at it alone. He told CNN, "[Goldman] cannot fund their business on an unsecured basis. To say we don't need TARP funds doesn't make a lot of sense to me."

True, it's sad that our banks must come crying for help from the government, but it's even sadder that they can't take their medicine and fix their businesses without throwing lavish parties and paying out billions in bonuses. They need to get a grip. Their industry lost billions and it's time to face facts and live within their means.

Lita Epstein has written 25 books including "Reading Financial Reports for Dummies" (second edition just released) and the "Complete Idiot's Guide to Value Investing."

Tags: aig, goldman sachs, GoldmanSachs, inthenews, tarp, wells fargo, WellsFargo

Print this

Reader Comments (Page 1 of 1)

2-06-2009 @ 11:55AM

Chip said...

There have been coropoate excesses, but why aren't we limiting the salaries of execs at Fannie, Freddie, the Senate, the House, and all of the other politicians who have been a large part of causing this whole mess by subsidizing people who couldn't reasonably afford to repay loans they couldn't have really qualified for in the first place?

2-06-2009 @ 12:42PM

Rondonit said...

A CEO's job isn't to ensure the future, just make the best TODAY he can. Even if it means bankruptcy tomorrow for the corporation (Golden Parachute for him though)

2-06-2009 @ 12:43PM

Iridium said...

Goldman Sachs is perhaps one of the most evil corporate entities in the world. They hold 90% of the blame for the record runup in oil and engage in a lot of acts of questionable legality. They are aslo a principal entity in the creation of overleveraging and credit default swap trading. Goldman worked behind the scenes to cause the massive housing bubble in order to profit from it.

They want to give back the money to get out of the crosshairs. They do not want the government digging into the books.

The best thing that could ever happen for the world would be Goldman Sachs closing up shop. They represent everything wrong with Wall Street.

4-21-2009 @ 3:29PM

You Guys Are Uneducated said...

First off, there is nothing wrong with Wall Street. There is something wrong with you for not working hard and working your way up in the world.

Second, anyone should realize that the government is a bloated monstrosity, and that no one in their right mind would seek a government solution for a private sector problem, let alone Goldman Sachs which is stuffed full of Ivy League MBA's, namely people more intelligent than you.

Third, get your marxist outrage under control. In this country, we seek equality of opportunity, not equality of outcome. It's YOUR fault that you are not successful, it's YOUR fault that you are an uneducated failure. Do not blame the wealthy and successful for your problems.

Fourth, your claim about Goldman Sachs being evil and manipulating oil prices is completely incorrect. The high gas prices of the past years are due to economic growth (demand) in developing nations like India and China.

Fifth, Obama is a Marxist who wants control of the economy. Why is it that numerous French Marxist economists were quoted in the US budget? Yeah, you didn't even read it, did you. That's because you are the average stupid voter who doesnt bother to do his homework on the government. Surprise, surprise. You were probably that guy who in school didn't do his work either. Now that Obama is handing out money and crap, you are just like everyone else who wants a free handout. Why? Because some guy makes 10 million a year and you make $15 and hour? My friend, that is YOUR fault. The free government in this country does not owe you anything beyond the right to life, liberty and the pursuit of happiness. Marxism espouses equality of outcome. We all know what happened to Communism- it failed. So why are we being stupid and rushing to communism to fix our problems? Why is it that during the Cold War the Soviet Union was stealing technology from the US, NOT the other way around. Why don't you think about that one, you liberal failure.