Goldman Sachs to return $10B of bailout money

By
Pallavi Gogoi and Barbara Hagenbaugh, USA TODAY
April 15, 2009, 11:13 AM ET
2 min read

— -- A trickle of banks, large and small, are lining up to repay the government's bailout money.

On Tuesday, Goldman Sachs gs raised $5 billion by selling more than 40 million shares for $123 apiece.

To cheers from lawmakers, the New York investment bank said it would use the money to pay back the $10 billion the government gave it at the height of the financial crisis last October as part of the Treasury's Troubled Asset Relief Program, or TARP.

"Goldman Sachs' announcement … is welcome news for those of us who support an exit strategy from government intervention in the marketplace," says Rep. Spencer Bachus of Alabama, the top Republican on the Financial Services Committee.

Goldman would be the largest, if it follows six smaller banks, including Signature Bank sbny and IberiaBank, ibkc who have already repaid the government with interest.

But analysts are cautioning that the repayments should not be viewed as an indication that the economy is rebounding; rather as a sign of how worried bankers are about legislation that imposes limits on banks that take TARP money.

"Treasury shouldn't allow any of the larger banks to pay the money back until it is absolutely certain that the financial crisis is over and that each of them can raise money on their own," says Richard Bove, an analyst at Rochdale Research.

Treasury spokesman Andrew Williams says it isn't discouraging banks from repaying TARP funds as long as that doesn't jeopardize how they function. "Treasury does not want the repayment to hinder the ability of financial institutions to continue lending."

For smaller banks, the repayments are a way to showcase their strength during a recession.

Still they say they were pushed by changes in The American Recovery and Reinvestment Act, which imposes limits on pay and bonuses and places restrictions on hiring foreign nationals and training programs.

For instance, New York-based Signature Bank CEO Joseph DePaolo said the restrictions would make it difficult to recruit and retain "highly talented banking professionals throughout the metropolitan New York area."

John Fahey at Centra Financial, says his bank's payroll for 248 employees is $14 million, so he wasn't worried about compensation. "But when the government tries to tell you how to run employee training or rescind job offers, it's cumbersome," he says.