Goldman Sachs redeems TARP warrants for $1.1 billion

NEW YORK (Reuters) - Goldman Sachs Group Inc GS.N said it paid the U.S. Treasury Department $1.1 billion to redeem warrants, becoming the largest bank to fully escape the government's bank bailout program.

The government got the warrants last year when it injected $10 billion into Goldman from the Troubled Asset Relief Program, a sum that Goldman paid back last month.

Goldman joins U.S. Bancorp USB.N, BB&T Corp BBT.N and State Street Corp STT.N among large financial companies to get out of TARP. JPMorgan Chase & Co JPM.N has said it will let Treasury auction its warrants rather than pay an inflated price to buy them back.

Many banks have faulted TARP for its restrictions, including curbs on executive pay. JPMorgan Chief Executive Jamie Dimon has said participation is a “scarlet letter” for banks.

Morgan Stanley MS.N, which also paid back $10 billion of TARP money last month, remains in talks with the government on shedding the warrants, Chief Financial Officer Colm Kelleher told Reuters Television.

In a statement, Goldman said the $1.1 billion payment is in addition to $318 million of dividends that it paid the government on the bailout money. It said this represents a 23 percent annualized return on the initial $10 billion investment, which took the form of preferred shares.

Goldman announced the purchase eight days after it posted an unexpectedly large 33 percent jump in quarterly profit. It also at the time set aside $6.65 billion for compensation, prompting questions about the government’s perceived role in positioning Goldman to pay out huge bonuses while the rest of the economy remains under duress.

“The spotlight was on them because we just bailed out these companies, and now Goldman is making billions,” said Ken Crawford, a portfolio manager with Argent Capital Management. “It doesn’t look good.”

Earlier this month, a Congressional oversight panel estimated that Goldman’s warrants were worth $940 million, but could be worth as much as $1.25 billion.

Critics of TARP have questioned whether the government has been misusing taxpayer money in trying to prop up the banking sector, following hundreds of billions of dollars of credit losses and writedowns.

A Treasury official, however, suggested that Goldman’s involvement in TARP worked out well for taxpayers.

“In just nine months, the taxpayers have been repaid the full $10 billion that the government originally invested, along with $318 million in dividends,” the official said. “And Goldman is repurchasing the warrants for $1.1 billion.”

Crawford said that for Goldman, “to fully give back everything the federal government gave them, from a publicity standpoint, makes a lot of sense.”

Reporting by Steve Eder; editing by Jeffrey Benkoe and Tim Dobbyn