After first attempting to haggle over the price, Goldman Sachs Group Inc. has paid $1.1 billion to repurchase stock warrants from the Treasury Department. The move comes a month after Treasury announced new procedures for determining the value of such financial instruments.
Goldman Sachs last month repaid $10 billion in public money it received in October through the Troubled Asset Relief Program. It also paid Treasury $318 million in dividends payments on the preferred stock it issued the government.
But clearing its books of the stock warrants issued as part of the TARP package proved more complicated, with some government officials showing concern that the taxpayers would be underpaid for what could be a lucrative investment, while others argued that the government should extricate itself from the banking sector as quickly as possible.
Goldman, for its part, wanted to pay the lowest possible price.
Stock warrants give the holder the right to buy stock at a certain price in the future. Now that Goldman's operations have bounced back from the depths of the economic crisis, the warrants held by the government could yield significant gains.
Goldman's shares closed at $93.57 on Oct. 28, the day that Treasury finalized its investments in that company and eight other large financial firms. Its stock is now trading at more than $165.
Treasury got roughly 12.2 million Goldman warrants as part of the TARP deal. They are exercisable at $122.90 a share, meaning the government currently has paper profits of roughly $520 million.
Last month, with banks clamoring to leave TARP and escape a perceived unfriendly regulatory environment, Treasury announced the procedure by which it would price the warrants.
Under the announced terms, banks that have already redeemed the stock they sold the government have 15 days to submit their own valuation of the warrants.
Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.
Although neither Goldman nor the Treasury would comment on the negotiations, outside observers estimated that Goldman initially offered to pay $500 million for the warrants. This offer was evidently refused, prompting Goldman to relent and offer $1.1 billion rather than go through the independent appraisal process.
Elizabeth Warren, the head of the Congressional Oversight Panel overseeing the TARP program, said she thought the price was fair. "I think that means oversight works," she told a Congressional panel.
Goldman Sachs last month repaid $10 billion in public money it received in October through the Troubled Asset Relief Program. It also paid Treasury $318 million in dividends payments on the preferred stock it issued the government.
But clearing its books of the stock warrants issued as part of the TARP package proved more complicated, with some government officials showing concern that the taxpayers would be underpaid for what could be a lucrative investment, while others argued that the government should extricate itself from the banking sector as quickly as possible.
Goldman, for its part, wanted to pay the lowest possible price.
Stock warrants give the holder the right to buy stock at a certain price in the future. Now that Goldman's operations have bounced back from the depths of the economic crisis, the warrants held by the government could yield significant gains.
Goldman's shares closed at $93.57 on Oct. 28, the day that Treasury finalized its investments in that company and eight other large financial firms. Its stock is now trading at more than $165.
Treasury got roughly 12.2 million Goldman warrants as part of the TARP deal. They are exercisable at $122.90 a share, meaning the government currently has paper profits of roughly $520 million.
Last month, with banks clamoring to leave TARP and escape a perceived unfriendly regulatory environment, Treasury announced the procedure by which it would price the warrants.
Under the announced terms, banks that have already redeemed the stock they sold the government have 15 days to submit their own valuation of the warrants.
Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.
Although neither Goldman nor the Treasury would comment on the negotiations, outside observers estimated that Goldman initially offered to pay $500 million for the warrants. This offer was evidently refused, prompting Goldman to relent and offer $1.1 billion rather than go through the independent appraisal process.
Elizabeth Warren, the head of the Congressional Oversight Panel overseeing the TARP program, said she thought the price was fair. "I think that means oversight works," she told a Congressional panel.
published July 24, 2009, 0 Comments
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