Goldman buys back warrants; U.S. gets 23% return from bank

NEW YORK -- Goldman Sachs Group said Wednesday it has repurchased warrants given to the U.S. Treasury under the Troubled Asset Relief Program for $1.1 billion.

The bank said it believes the value of the warrants, as determined by the Treasury, was fair.

As part of the Treasury's $10 billion preferred stock investment in the bank last fall, the government received warrants that would have enabled it to buy Goldman shares at a set price in 10 years.

Goldman has already paid back the $10 billion loan, as well as paying $318 million in preferred dividends on the investment.

Combined with the warrant repurchases, Goldman has paid the government $1.42 billion, for an annualized return of 23%.

"Taxpayers have gotten a good return on their investment," the Treasury said in a statement. "The process we designed on valuation worked to protect taxpayers."

Goldman's announcement comes at a time of big debate over how to value the warrants.

The Treasury announced in June that it would value the warrants through negotiation with the banks. The agency's offers reflect financial modeling and surveys of market participants. If the two sides can't agree on a price, the banks are allowed to auction the warrants.

Earlier this month, a bipartisan congressional watchdog claimed the Treasury was selling the warrants for one-third less than they're worth, potentially shorting taxpayers up to $2.7 billion.

But some banks, including JPMorgan Chase, elected to sell the warrants at auction. Treasury said this is an indication it is driving a hard bargain, asking more than the banks were willing to pay.

Treasury has faced mounting accusations that its relationships with big banks are too cozy. After months of multibillion dollar bailouts, the banks are reporting strong profits while the economy remains in tatters.