Goldman Sachs and Other Banks Feel the Heat to Pay Back Bailout Billions

WASHINGTON, April 15, 2009— -- More and more of the nation's banks are starting to pay back billions in government bailout aid, a move analysts warn might seem to be a sign of strength, but could ratchet up pressure on other banks to follow suit and result in some institutions prematurely getting out of the government program.

"There's no question that it will put pressure on other financial institutions to repay the [Troubled Asset Relief Program] money so that they are perceived as strong credit to the market," said Sean Egan, president of Egan Jones Ratings Company.

"This could absolutely lead to institutions getting out prematurely," he said. "Not only that, but in many cases they can't afford to pay it back, but they might do it for the marketing perspective."

Former Treasury Secretary Paul O'Neill noted that at the start of the TARP program, the heads of the major U.S. banks were summoned to Washington and told they were required to take the money so that those who needed it would not be stigmatized.

"So they all took the money. Stop and think about that. What was the purpose of this policy? To deceive the people so that the public would not know which banks were in danger of failing? Why didn't any of the CEO's, claiming not to need the money, have the courage to refuse?" O'Neill said in an e-mail to ABC News. "If banks now claim they want to return the money because they don't need it, why do they have to raise new capital to replace the money from we the people in order to repay the government?"

O'Neill said that unfortunately the government is permitted to practice a policy of deception for the greater good of the society.

"Is the public ever going to have clear facts regarding any of the individual institutions?" he said. "For months I have been calling for a public disclosure of all bank assets by rating class, along with facts showing the face value of so-called toxic assets along with the associated current book keeping value and associated reserve account. The public and members of Congress seem to be accepting of the idea that a handful of people in the administration and the Fed should do all of this in secret."

Earlier this week, Goldman Sachs, reporting better than expected first-quarter profits of $1.66 billion, said it would become the latest in a growing line of banks trying to return federal money.

To calm investors the Obama administration now looks like it will be forced to release information about the health of 19 of the country's largest banks that it gathered as part of its "stress test" process, The New York Times reported this morning.

All attention on Wall Street though is likely next to turn to JP Morgan Chase for the release of its first-quarter earnings report tomorrow.

Last month JP Morgan Chase CEO Jamie Dimon told ABC News that banks should return the money only if they are strong enough to do so, rather than simply to increase their executive compensation payments.

"When it gets returned, it shouldn't get returned so you can pay people. That is not why anyone wants to or should return the TARP money," Dimon told ABC after he and a dozen other bank CEOs met with President Barack Obama at the White House.

"I think the interest of everyone is the same -- do what's right for the country, not what's right for your institution," Dimon added.

By returning the government aid, financial institutions stand to benefit in a variety of ways. Not only will they appear to be in stronger financial shape, but they will also be able to avoid the administration's restrictions on executive compensation.

On Tuesday, Goldman Sachs sold $5 billion in a public stock offering in an effort to pay back the $10 billion it received as part of TARP, the government's $700 billion bailout program.