Goldman Sachs Maybe Ready To Pay Off TARP Money, Bid For iShares

Goldman Sachs, whose smugness at having avoided the subprime crisis was snuffed out by big losses and having to get some bailout money, are set to be smug once more with the news that they could pay off their bailout by April.

Goldman took $10bn in bailout money to make sure their capital was on an even keel, but now it expects to pass the “stress tests” being placed on banks and go back to the usual round of dividend payments, bonuses and champagne breakfasts unmolested by the dread hand of government. The stress tests are simulations of how banks will perform with unemployment levels at 10.3% in 2010, and aim to predict whether the banks are under-capitalised for such conditions. The tests have been criticised by some, most memorably by Wells Fargo chairman Richard Kovacevich who called them “asinine”, suggesting that banks that fail the tests will see their share price drop, and are therefore prey for short-sellers.

Goldman haven’t formally applied to pay back the money, though they and six other banks including Morgan Stanley and Comerica have enough capital to pay back their TARP funds. Banks are getting increasingly annoyed a la Kovacevich over the ongoing changes and restrictions that the government is placing on bailed-out banks, so expect some to get out as soon as the tests are done. But there may well be many more who will sit on their hands and wait until they’re sure they don’t need it, according to insiders talking to Reuters and the Wall Street Journal.

This makes us wonder – if the banks are ready to escape the restrictions, both legal and moral, of operating with taxpayer money, have the regulators had enough of a chance to catch up with them? Are the banks going to go straight back to the derivatives spell-book and start cooking up a cauldron of risky investments all over again? Ongoing market volatility will breed prudence to a certain extent, but there needs to be something in place to keep the banks in check once the government removes its hand.

Goldman are also getting in on the iShares buyout that we looked at last week – the exchange-traded-funds firm is being sold by Barclays, but not so it can accrue capital to avoid the asset-insurance program, oh no, not at all. The FT reported yesterday that Goldman is putting together a bid, along with Vanguard, Bain Capital, Apax and Hellman & Friedman. The fact that iShares is a market leader in a sector that could diversify portfolios in a recession, means that it’s quite an attractive prospect – Barclays might not end up with the bargain payoff you might expect.

The bids end a week on Friday. No doubt Barclays will have wriggled their way out of the insurance scheme by then anyway, given their wizardry for all things barely legal. If you want to see how they got out of paying a lot of taxes, via the medium of bewildering flowcharts, TechCrunch has the leaked memos the Guardian couldn’t publish.

Posted by Ben Beaumont-Thomas in Hot Money | March 25, 2009 12:01PM |