Goldman 'warrants' raves from Congress

Legislators applaud news of the investment bank's 'full and fair' TARP warrant repayment, but pressure builds on Treasury to deliver more big payback checks.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Colin Barr, senior writer

blankfein_090211.03.jpg
Goldman Sachs CEO Lloyd Blankfein won plaudits for presenting taxpayers with a big check.
Who will benefit most from the Obama administration's proposed financial regulations?
  • Consumers
  • Banks
  • Regulators

NEW YORK (Fortune) -- Goldman Sachs gave taxpayers their due Wednesday. Now, legislators are pressing Treasury to get other banks to do the same.

Goldman Sachs (GS, Fortune 500) said it paid the government $1.1 billion to redeem the stock-purchase warrants it issued Treasury last fall. The payment marks the first time taxpayers have recovered the full value of warrants issued to a major institution under the Troubled Asset Relief Program, one expert said.

"The Goldman Sachs TARP warrant deal is the best deal that taxpayers have got to date," Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette, said in an email. "Since at least April 2009, representatives from Goldman Sachs have said that taxpayers deserve a fair return for their investments. They lived up to their word today."

The repurchase agreement comes on a day in which a congressional panel heard testimony on Treasury's handling of the TARP warrant-repayment process. The government took warrants, which give investors a right to buy a stock later at a specified price, in firms that borrowed from it last fall as a way to compensate taxpayers for the risks they took.

Herb Allison, the assistant Treasury secretary for financial stability, told the House Financial Services subcommittee on oversight and investigations that the Goldman deal was "a very fair price" for taxpayers.

"That sounds pretty good," said Rep. Dennis Moore, D-Kansas, said of the 23% annualized return taxpayers got on their $10 billion investment last fall in Goldman, "but is it good enough?"

The panel is due to hear testimony later Wednesday afternoon from the heads of three government watchdog organizations: Elizabeth Warren of the Congressional Oversight Panel, Thomas McCool of the Government Accountability Office and Neil Barofsky, the TARP's special inspector general.

Some legislators wondered if Treasury has been aggressive enough in collecting taxpayers' full due from banks that have repaid their TARP loans. A July 10 report from Warren's panel estimated Treasury had recovered just 66% of the estimated value of warrants in repurchase transactions.

The problem, some legislators said, stems from Treasury's adherence to a lengthy and convoluted negotiating process with banks. Last week, Mary Jo Kilroy, D-Ohio, introduced a bill that would force TARP warrants to be sold in the open market rather than settled through private negotiations.

The negotiations, Kilroy said, have resulted in subpar recoveries for taxpayers and a lack of transparency. "Now is the time to act to close this loophole," Kilroy said Wednesday.

Allison said Treasury would consider the matter.

"We will continue to refine our process with the aim of protecting the taxpayer's investment," he said in prepared testimony.

Goldman isn't the only bank that has pressed to settle its outstanding warrants, but others seem less eager to pay full fare.

JPMorgan Chase (JPM, Fortune 500) last week waived its right to repurchase the warrants, saying it would prefer to see them auctioned in the market. CEO Jamie Dimon reportedly complained to Treasury Secretary Tim Geithner about the government's valuation methods.

Allison defended those methods Wednesday, and Wilson said the Goldman payment -- which the firm described as "full and fair" -- is in line with his own estimates.

According to Wilson's numbers, the Goldman warrants -- which gave the government the right to buy 12.2 million shares by October 2018 at $122.90 each -- were worth between $947 million and $1.35 billion at current market prices. Goldman's stock was trading at about $160.65 a share Wednesday.

The midpoint of Wilson's estimate range is $1.12 billion -- right in line with the amount Treasury and Goldman agreed to.

In contrast, U.S. Bancorp (USB, Fortune 500) -- the 12th biggest bank holding company in the U.S., according to government data -- paid just $139 million last week to settle its warrants. Wilson said that payment meant taxpayers were getting shortchanged by between $48 million and $164 million.

As pleasing as the Goldman payment is, the JPMorgan auction could set the more important precedent.

"Goldman has done very well under the bailout, and they just wanted to end their involvement," said Wilson. "Everyone isn't going to be so eager to get out quickly." To top of page

Company Price Change % Change
Bank of America Corp... 16.20 -0.13 -0.80%
Apple Inc 102.13 1.24 1.23%
Facebook Inc 74.63 -1.33 -1.75%
Yahoo! Inc 38.18 0.39 1.03%
Pfizer Inc 29.49 0.28 0.96%
Data as of 4:02pm ET
Index Last Change % Change
Dow 17,122.01 15.31 0.09%
Nasdaq 4,569.62 -1.02 -0.02%
S&P 500 2,000.12 0.10 0.00%
Treasuries 2.36 -0.03 -1.25%
Data as of 9:46pm ET
More Galleries
'My biggest retirement mistake' Five CNNMoney readers share stories about saving that you can learn from. What they would do differently if they had another chance. More
Inside a $60,000 vacation of a lifetime Private jet tours around the world are growing in popularity, with a number of companies cropping up to take travelers on luxe, bucket-list trips. Here's a look at one 17-day journey, run by TCS Expeditions, that will take 78 people to some of the most lusted-over destinations. The price: $60,000 per couple. More
Don't want a bigger iPhone? Here are 6 alternatives Apple's next-generation iPhones are set to be the largest ever. But for those of us who don't want to give up any more space in our pockets, here are a few smaller options. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.