Monday, April 13, 2009

Goldman Sachs doesn't see a bonus in TARP


Goldman Sachs today announced strong first quarter earnings and its intention to raise $5Bn so that it can start to pay off its TARP funding. You have to wonder if the motivation to get out of TARP, is executive pay. Banking conditions haven't really improved much in the last month or two and almost all the banks have taken TARP money, so why the rush to pay back the government? It isn't as if banks with TARP money are considered inferior. The only conclusion I can draw is that Goldman Sachs execs hate to see the bank making such huge profits (they just made $1.8 Billion dollars in the last quarter) and not being able to pay out huge bonuses to themselves (I wonder how much profit they would have made if they'd been allowed to pay bonuses and salaries as they did before TARP?). Goldman will need approval from the regulators to pay back its TARP money. Hopefully the first real question they ask is: "Why do you want to pay it back so soon?" I also hope they listen really carefully to the answer. It would be a tragedy if Goldman Sachs paid back its TARP funding and then simply carried on as if nothing had happened. It would be an even bigger tragedy if that then resulted in them getting right back to where they were before the TARP funding.

21 comments:

josephk said...

Regarding executive pay, the short answer’s undoubtedly yes, but I think there are other factors at work. Paying back TARP allows Goldman to operate without the government restricting not just pay but its ability to pursue certain investment strategies and retaining/gaining talent that’s fleeing to TARP-free institutions. Even bigger in my mind is the hazard of government writing rules on the fly, a tenuous position for any business (ex/ the 90% bonus tax resulting from public furor over AIG that impacted scores of employees at other aid recipients). Stress test results in the coming weeks could bring other unforeseen restrictions. And I guess “inferior” is a relative term these days but the media has also played a major role in perpetuating a guilt by association complex that is in my opinion yet another factor pushing banks to break free from TARP or to run away in the first place. With the stock on a tear since last year and a chance to raise capital without diluting the heck out of shareholders, GS probably figured there was no better time than now. Not saying any of this is right or wrong, but outside of companies on literal life support, Goldman probably isn’t alone in this view.

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