A trickle of banks, large and small, are lining up to repay the government’s bailout money.
On Tuesday, Goldman Sachs 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,” said 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 and IberiaBank, 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,” said Richard Bove, an analyst at Rochdale Research.
Treasury spokesman Andrew Williams said 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,” Williams said.
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.”
Goldman seems to agree. It is paying off the government despite a low 5 percent dividend on TARP funds. By comparison, it’s paying 10 percent on Warren Buffet’s $5 billion investment.