Goldman feels 'duty' to return aid

A reluctant US Treasury is under pressure to accept back the taxpayer money it handed to the nation's biggest banks during last year's financial panic, after Goldman Sachs said yesterday that it felt "a duty" to return the money.

The Treasury is concerned that allowing strong banks to return cash will stigmatise weaker ones that want to keep hold of the money, undermining confidence across the banking system.

The eight biggest Wall St firms were all forced to accept billions of dollars in government aid last October and more than 400 other institutions have also now taken cash under the so-called Troubled Asset Relief Programme, known as Tarp.

Yesterday, Goldman Sachs became the first bank to raise capital in the private markets since conditions stabilised, selling US$5 billion ($8.6 billion) of new shares to investors enthused by its forecast-busting first-quarter results.

The share sale was completed before trading began yesterday and demand was strong enough for Goldman to price the new stock at just a 5.5 per cent discount to the previous closing price.

The funds will go towards repayment of the US$10 billion in Tarp capital, as soon as the Treasury gives permission.

The federal Government is reluctant to accept money back, at least until it has completed its "stress tests" on the nation's largest banks to judge whether they are strong enough to withstand a long recession. The tests are due to be completed by the end of this month.

"We never believed the investment of taxpayer funds was intended to be permanent," Goldman's chief financial officer, David Viniar, said yesterday.

"We view it as our duty to return the funds, as long as we can do it without negatively impacting our financial profile, or ability to act as a central liquidity provider to the global capital markets."

Goldman is keen to rid itself of the restrictions on executive pay and the scrutiny that has come with Tarp funds.

Last week, an uncomfortable Lloyd Blankfein, the chief executive, was confronted by campaigners carrying a banner saying: "We want our $$$$ back!"

Barney Frank, chairman of the House Financial Services Committee, said the Government should welcome the move, and dismissed arguments that to do so would stigmatise weaker banks.

"That is one of the dumbest things I've heard," he said. "Do you think that if you were analysing a bank, you would look primarily at the Tarp money?"

Isabel Schauerte, at consulting firm Celent, said Goldman would boost its reputation by returning the funds.

"Goldman is making some progress in the quest to restore its pre-crisis image of exceptionalism. Better than expected earnings are obligatory in this regard, as is early repayment of Tarp money."

Not all analysts agreed that returning the money was the right thing, however, since Goldman is required to pay lower dividends on Government funds than on other capital it raised last year and will cut dividends for all shareholders following yesterday's share sale.

A quarter ago Goldman had its first net loss ever. Goldman lost US$2.29 billion in the September-to-November period, and another US$1 billion in December. (December was not included in the most recent quarter, because Goldman switched to the calendar quarter system that starts in January).

- INDEPENDENT, AP