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Wednesday, April 15, 2009

Goldman: Let me pay!

WSJ analyzes the tricky situation government and banks are facing:

When it comes to the TARP, Goldman Sachs Group and the Obama administration have been portrayed as two Englishmen arguing over a restaurant check: "Please let me pay." "No, no, my dear boy, I won't hear of it."

Goldman's desire to repay its $10 billion slug of TARP money pronto is understandable. The chief reason is to remove associated restrictions on something that goes to the heart of its business model: how much people get paid.

The TARP's aim, though, is to stabilize the financial system as a whole. Recent signs of improvement on that front are still questionable. Goldman's outsize trading gains in the first quarter, coming alongside weakness in other businesses, offer limited comfort. And Goldman still uses other government guarantees, having issued $21 billion of cheap debt backed by the U.S. since October, according to Dealogic.

From the government's perspective, more retail-exposed banks still face big hits on consumer-credit portfolios. Allowing Goldman to repay now, the thinking goes, risks stigmatizing others not yet able to do so while the system is still fragile. The bank may well have to wait.

Having just raised at least $5 billion by issuing stock, knocking 9% off its share price in the process, Goldman appears confident of success. In any case, a delay in approval to repay TARP wouldn't wholly remove Goldman's advantage. Merely by showing it can raise fresh capital to repay TARP, it separates itself from the pack. Even if the long-term outlook of the investment-banking model remains foggy, the imperative to get one up on one's rivals remains as strong as ever.