Goldman Sachs is this week preparing to tap shareholders for as much as US$6 billion to repay the US$10 billion it was given by the US government as part of the Treasury Department’s US$700 billion bailout scheme.
A source close to Goldman Sachs said that details of the cash call would most likely come after the banking group reveals its first quarter earnings in New York today, which are expected to be strong.
The precise value of the cash call has not yet been decided, but it is understood to be considering raising about US$6 billion.
Goldman insiders insist that the bank never wanted to accept the government’s handout under the Troubled Asset Relief Program (TARP), but had no choice as the Treasury wanted to keep an even playing field among surviving banks.
The TARP payments were made to improve confidence in the banking system in the wake of the collapse of Bear Sterns and Lehman Brothers. While Goldman is in possession of the government funds, it must abide by strict regulations on executive pay and certain operations imposed by the US Treasury, the Federal Reserve and other regulators.
Elizabeth Warren, a Harvard Law professor charged with overseeing the TARP on behalf of the US Congress said in an interview with the Observer last week that she strongly believed the banking system would not recover fully until the management of all banks receiving help were replaced and shareholders were “wiped out.”
Once the TARP cash is paid back Goldman executives will be free to enjoy the big paydays of old.
But Goldman, like all its counterparts with TARP funds in their coffers, is forbidden from paying back the government until they have undergone a top secret “stress test” designed by the US Treasury. Goldman is forbidden from talking about the test, but it is expected to be completed by the end of this month or the first week of next month.
Goldman has also reportedly raised US$5.5 billion in investor commitments to buy private-equity investments at a discount on the secondary market.
The new Goldman fund, GS Vintage Fund V, is the largest secondary fund ever raised, the Wall Street Journal and the Financial Times said in their online editions on Sunday.
The fund hopes to benefit from the trouble bigger banks and other institutional investors are having in recovering some of the money they placed in private-equity businesses.
Sales of such interests are occurring at deeply discounted prices of 50 percent to 70 percent or more from face value, private-equity executives say.
JPMorgan Chase is also considering raising investor commitments for its own secondary fund, the Financial Times said.