* Sells common stock at $123 per share
* Goldman ramps up risk despite "dangerous" environment
* Shares drop 11.6 percent to $115.11
* CFO: TARP repayment depends on reg approval, stress test
(Adds Treasury spokesman in paragraph 9)
By Karey Wutkowski and Jonathan Stempel
WASHINGTON/NEW YORK, April 14 Goldman Sachs
Group Inc (GS.N) sold $5 billion of stock to help fulfill what
it called its "duty" to repay a federal bailout, but the
government worries a quick return of funds could pressure other
banks to repay their aid prematurely.
The sale of 40.65 million shares at $123 each gives the
bank roughly half what it needs to return the $10 billion of
taxpayer money it took from the Troubled Asset Relief Program.
"We never believed the investment of taxpayer funds was
intended to be permanent," Goldman CFO David Viniar said on a
conference call on Tuesday. "We view it as our duty to return
the funds, as long as we can do it without negatively impacting
our financial profile, or ability to act as a central liquidity
provider to the global capital markets."
Viniar said repayment would depend on regulatory approval
and the results of a government "stress test" gauging Goldman's
ability to weather a deep recession. Nineteen banks are
undergoing such tests, which are to be completed this month.
Repaying the funds would free Goldman from many government
restrictions, including caps on executive pay. Chief Executive
Lloyd Blankfein's compensation fell to $1.1 million last year
from $70.3 million in 2007, Goldman's proxy filing shows.
The bank said it retains a $164 billion pool of cash and
liquid assets that it could use to buy troubled assets and
loans as rivals pare their balance sheets.
Tuesday's stock sale came a day after Goldman posted
better-then-expected quarterly profit, bolstered by substantial
risk taking, and after the bank's shares had more than doubled
from their record low of $47.44 last Nov. 21.
Some investors who bought the new stock, however, may have
had quick losses. Goldman shares posted their largest
percentage drop since Jan. 20, closing down $15.04, or 11.6
percent, at $115.11 on the New York Stock Exchange. A Standard
& Poor's index of financial stocks .GSPF fell 7.7 percent.
OBAMA EYES BANK CAPITAL, LENDING
The Treasury Department declined to comment on Goldman's
plan to repay the TARP funds, but regulators did not indicate
any efforts to block it. A Treasury spokesman said that, in
general, financial firms raising private capital is a positive
While repaying TARP might show Goldman's strength,
policymakers worry it could "harm the recovery effort" by
prompting other banks to return their bailout money too soon,
limiting lending capacity, a person familiar with the Obama
administration's thinking said. The person was not authorized
to speak publicly. [ID:nWEN7159]
White House spokesman Robert Gibbs said President Barack
Obama did not want the government to run every troubled bank,
and that banks had a "need for responsibility" in paying
Obama, in a speech in Washington, said that if banks need
more capital and cannot raise it privately, the government will
"force the necessary adjustments" and provide support to clean
up the lenders' balance sheets. [ID:nN14428395]
Goldman converted to a commercial bank in September as a
credit market freeze and Lehman Brothers Holdings Inc's
LEHMQ.PK bankruptcy upended the Wall Street banking model.
The same month, Goldman got a $5 billion investment from Warren
Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N).
HIGHER TRADING RISK
Goldman on Monday posted a $1.66 billion first-quarter
profit after preferred stock dividends, or $3.39 per share,
more than double what analysts had forecast.
Viniar said profit resulting from payments from ailing
insurer American International Group Inc (AIG.N) "rounded to
zero" in the first quarter.
Goldman's results may raise expectations for rivals
scheduled to report this month, including JPMorgan Chase & Co
(JPM.N) on Thursday, Citigroup Inc (C.N) on Friday and Bank of
America Corp (BAC.N) and Morgan Stanley (MS.N) next week.
David Trone, a Fox-Pitt Kelton analyst, said Goldman
benefited from a "windfall" in fixed income, currencies and
commodities results that is "unlikely to repeat." He rates
Goldman "in line."
Goldman said its "value at risk," or the maximum it would
expect to lose daily on 95 percent of trading days, rose to a
record $240 million in the first quarter from $197 million in
the fourth quarter. It ended the first quarter with $925
billion of assets, up 5 percent from the end of November.
The trading activity suggests Goldman "has not backed off
in any way from taking risk in the markets," wrote Richard
Bove, an analyst at Rochdale Securities.
Lucas van Praag, a Goldman spokesman, said the "vast
majority" of the quarter's risk-taking was on behalf of
clients, not the company. He also said value-at-risk measures
would not have risen from the fourth quarter had mortgage and
credit volatility not increased.
Goldman is paying 5 percent interest on the government's
$10 billion preferred stock stake. It also sold the government
warrants to buy up to 12.2 million shares at $122.90 each.
Barney Frank, chairman of the House of Representatives
Financial Services Committee, said he was pleased about
Goldman's plans to repay TARP.
"To the extent that we have people pay it back, we should
welcome that," he told Reuters. [ID:nNWAT011278]
Viniar said the environment remains "dangerous" in light of
"extremely difficult macroeconomic conditions" and tight
credit, which put a premium on liquidity.
But Goldman is doing less to diversify away from businesses
sensitive to capital markets and corporate business activity.
Morgan Stanley, for example, is taking a majority stake in
a venture combining its brokerage with Citigroup's and has said
it plans to bulk up in retail banking.
"We're not really a consumer lender," Viniar said.
Repaying TARP could be risky if conditions worsen more than
"Our economists are, I would say, more optimistic or less
pessimistic than they've been about the outlook for the
economies going into the second half of the year, so that gives
us some cause for optimism," Viniar said.
(Reporting by Dan Wilchins, Jonathan Stempel and Christian
Plumb in New York; and Ross Colvin, Susan Cornwell, Corbett B.
Daly, David Lawder, Matt Spetalnick and Karey Wutkowski in
Washington; editing by Andre Grenon, John Wallace and Tim