Goldman push to repay $10bn
By Greg Farrell and Francesco Guerrera in New York

Published: April 13 2009 23:39 | Last updated: April 13 2009 23:39

Goldman Sachs signalled its determination to be the first major bank to emerge from the financial crisis, revealing plans late on Monday to raise $5bn to pay back government funds and reporting stronger-than-expected first-quarter earnings of $1.81bn.

The bank said that, pending government approval, it would use the $5bn raised through the sale of common stock to help pay back the $10bn allocated to it last year as part of the Troubled Asset Relief Programme.

If it succeeds, Goldman would be the first major US bank to pay back Tarp funds and would free itself from restraints on compensation and business activities imposed by regulators.

The early repayment would also raise the stakes for other big US banks, which would find themselves torn between the need to maintain strong capital levels and the desire not to be seen as “weaker” than Goldman.

Adding a touch of drama to its earnings announcement, Goldman released its figures late on Monday, after markets closed, rather than on Tuesday as originally scheduled. The announcement of the capital raising, dilutive to existing shareholders, sent the bank’s shares down slightly in after-hours trading following a day in which Goldman stock jumped $5.82 to $130.15.

The firm’s $1.81bn of net profits marked a 20 per cent increase from a year ago, and a sharp reversal from the $2.1bn loss in the fourth quarter of 2008.

The performance was driven by a record showing in fixed income, commodities and currencies activities, which generated $6.56bn in revenues, more than double the total from a year ago.

Revenues in Goldman’s equities business were $2bn, a 20 per cent decline from a year ago. Investment banking revenues, at $823m, were also off from levels of a year ago and late 2008.

Goldman’s principal investments generated a net loss of $1.41bn for the quarter, evidence of the continuing decline in real estate assets, as well as a loss of $151m related to the firm’s holdings in the Industrial and Commercial Bank of China.

Goldman benefited from a quirk in its reporting schedule. Its fourth quarter ended in November 2008, but after converting to a bank holding company last year, Goldman adopted a calendar-year earnings period starting in 2009. As a result, the company did not have to include December in its first quarter earnings, a month in which it sustained $1.3bn in pre-tax losses.

In a statement regarding the Tarp repayment, Goldman said that “after the completion of the stress assessment, if permitted by our supervisors and if supported by the results of the stress assessment, Goldman Sachs would like to use the capital raised plus additional resources to redeem all of the Tarp capital”.
Copyright The Financial Times Limited 2009

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