Goldman Sachs Now Entirely Free From Treasury, On The Cheap (GS)

It has only been a week since everyone was drawing that TARP repayment by Goldman Sachs Group, Inc. (NYSE: GS) as being on the cheap after the investment banking firm, a.k.a. bank holding company that is no bank, posted a monster quarter with billions in income.  The company announced today that it has now redeemed the warrants the U.S. government received in connection with its investment in the firm through the TARP’s Capital Purchase Program at $1.1 billion.  This is said to be at the full value the U.S. Treasury Department has determined.

Goldman Sachs went on to note that there are a number of ways to value the warrants, and it even included through a public auction.  But noted, “we believe that in the context of the extraordinary actions taken by the government to help stabilize the financial system, this valuation of the warrants represents full and fair value.”  By mentioning “at the full value the U.S. Treasury Department has determined” above, this is the firm’s way of saying that the government came to that figure and that they are not on the hook for any more.

Some of the criticism that has been handed out is justified, and some is not.  But that is what happens when a firm that has been able to be as profitable as Goldman Sachs has been in taking money from the capital markets is supposed to be on the taxpayer’s dime and posts income that high.  The revenues were a record… $13.8 billion.  And the income, that came to $3.44 billion, or $4.93 EPS.  Frankly, when a firm is out from under the government its income is truly its income.  But let’s just say it is easy to see where many people on Main Street might feel that those billions should have gone to the government or the taxpayers.

It was just in June that the firm repaid $10 billion to the U.S. Treasury for its TARP bailout funds.  It also noted a paid sum of $318 million in preferred dividends and these payments combined comes to a total $1.418 billion.  The release even goes on to say that this represent an annualized return for Uncle Sam of 23%.  Technically, that was listed as a return to taxpayers.  But that is Uncle Sam’s money.

Chairman and CEO Lloyd Blankfein said in the statement, “This return is reflective of the government’s assistance, which benefitted the financial system, our firm and our shareholders… We are grateful for the government efforts and are pleased that this additional money can be used by the government to revitalize the economy, a priority in which we all have a common stake.”

Blankfein did NOT add in, “But we are glad to have Uncle Sam out of our operations…..”  Sometimes what is not said is the obvious.  There was also no mention that Warren Buffett negotiated a better deal, which was one of the issues that Hank Paulson was recently criticized over in his grilling that took place during his latest testimony in Washington D.C.

Jon C. Ogg
July 22, 2009