Goldman Sachs Group Inc, by selling stock to help it repay $10 billion to the US Treasury, might pressure competitors to follow suit or appear dependent on government support, analysts said.
The company, scheduled to report earnings on April 14, is considering announcing the share sale as early as next week. Lucas van Praag, a spokesman for New York-based Goldman Sachs, declined to comment.
A 47 per cent gain for the company’s stock price this year and a return to profitability in the first quarter might help Chief Executive Officer Lloyd Blankfein raise new money, analysts said. That might let Goldman Sachs, the sixth-biggest bank, return the cash received in October from the Treasury’s Troubled Asset Relief Program (TARP) and shake off compensation and hiring restrictions imposed on banks that took the US aid.
“It’s in Goldman’s best interest to be free from the TARP,” said Brad Hintz, an analyst at Sanford C Bernstein & Co in New York. “But just because it’s best for Goldman Sachs, doesn’t mean their repayment is in the best interest of the broader US economy.”
Goldman Sachs’ repayment may lead banks “to race each other to access a very weak equity market and to write their checks to the Treasury,” Hintz said by e-mail yesterday. “This could set off new credit concerns about the banks that can’t repay and could set back the recovery of the credit markets.”
Citigroup Inc, the third-largest US bank, has tumbled 55 per cent in the New York Stock Exchange composite trading this year and is expected by analysts to report a sixth consecutive quarterly loss. Bank of America Corp, the largest US bank by assets, has dropped 32 per cent this year and analysts estimate it will report a first-quarter profit.
Mack rejects repayment
Morgan Stanley CEO John Mack, whose firm is expected by analysts to report a first-quarter loss when it reports earnings a week after Goldman, said last month he opposed any move by banks to return TARP money right now. Morgan Stanley, which has gained 58 per cent in New York trading this year, was the second-biggest US securities firm after Goldman before they both converted to banks in September to access Federal Reserve lending programmes.
“As much as we would like to give the money back and just focus on not having government involvement, being totally a public entity, we think, and I think, that it’s the wrong time to do it now,” he told employees on a March 30 conference call.
The Federal Reserve is reviewing the financial condition of 19 US banks in a so-called stress test to determine whether any need to raise more capital or require extra aid to help absorb losses from further deterioration of the economy.
Stress test silence
The 19 banks, which include Goldman Sachs as well as Citigroup, Bank of America and Morgan Stanley, have been told not to talk about the tests so the government can release the results in an orderly fashion later in the month, according to people familiar with the matter.
“The top 10 TARP-funded banks will start being differentiated as to those that can shed the TARP and those that cannot,” said Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs partner. A share sale by Goldman “makes the gap more pronounced and more obvious.”
