April 10, 2009
Goldmans could launch rights issue next week
Investment bank which has $10 billion loan from US government predicted to raise equity soon to repay it
Christine Seib in New York
Goldman Sachs is considering announcing a multi-billion dollar rights issue to repay its $10 billion (£6.8 billion) US Government loan as early as next Tuesday.
But the Wall Street bank may meet resistance from the Government, which yesterday met regulators to discuss the stress tests carried out on America’s 19 largest banks to determine which companies need another bailout.
Goldman Sachs will reveal its first-quarter figures next Tuesday. David Viniar, the bank’s chief financial officer, said in February that the bank wanted to repay the cash pressed upon it by the Treasury and raised the possibility of a stock issuance in order to do so.
The bank’s decision on whether to go ahead with the rights issue will depend on market conditions. The company has sufficient cash to repay its taxpayer loan without a share sale,
according to insiders.
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Five small US banks have already repaid their loans and three more have announced plans to do so imminently.
Bankers say, however, that the big banks have received no guidance from the Government on when they will be permitted to pay off their debts. Mr Viniar acknowledged in February that there were restrictions on the repayments, which can only be made when the company raises Tier 1 capital and not from earnings.
The S&P 500 closed up 1.7 per cent on Thursday, its fifth consecutive week of gains, while the Dow Jones was up by 0.8 per cent. The markets, closed yesterday for Good Friday, were buoyed by rising bank stocks after Wells Fargo, the fourth-biggest US bank, said that it would make a record $3 billion profit in the first quarter.
Goldman Sachs’ shares were up 8 per cent at $124.33, their highest level since last October’s bailout.
Isabel Schauerte, analyst at Celent, the financial research firm, said that a capital raising was a large risk for Goldman Sachs.
"A return of taxpayer funds would ... set it apart from the pack, just as in better times," she said. "A failure in the capital-raising endeavour, however, could trigger a potentially momentous decline investor and creditor confidence."
The Treasury forced the country’s biggest banks to participate in its $700 billion Troubled Asset Relief Program (Tarp) last October in order to calm fears about the industry’s stability and avoid singling out weaker banks, regardless of whether some banks actually needed extra cash.
The handouts have since been used by the Government to constrain executive pay at the banks, infuriating bank bosses.
Kenneth Lewis, Bank of America’s (BoA) chief executive, said last month that he was keen to repay the company's $45 billion from Tarp by late this year or early 2010, depending on the economy. BoA will report its first-quarter results on April 20.
JP Morgan Chase will report its results next Thursday and Citigroup next Friday. Both banks are likely to give an update on their use of the Tarp, from which JP Morgan received $25 billion and Citigroup $45 billion. Jamie Dimon, JP Morgan’s chief executive, has said previously that the bank did not need the Government’s money.
President Barack Obama met yesterday with Timothy Geithner, the Treasury Secretary, Ben Bernanke, the Federal Reserve chairman, Mary Shapiro, chairwoman of the Securities and Exchange Commission, Sheila Bair, the Federal Deposit Insurance Corporation chairwoman, Larry Summers, the President’s top economic adviser, and John Dugan, comptroller of the currency, to discuss a range of financial topics.
The meeting is expected to cover the stress tests conducted at the 19 biggest banks. The Government instituted the tests in February to find out how the banks would cope with worse economic conditions and whether they are likely to need more Tarp capital.
The banks have been told by the Fed not to discuss their test results publicly.
The White House is expected to give an outline of the results at the end of this month, although it has not yet decided whether to reveal the performance of individual banks.