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Goldman gets $1.1B in good PR

By : George White | July, 22 2009
TheDeal So Goldman Sachs Group Inc. (NYSE:GS) went ahead and ponied up $1.1 billion to buy back the warrants it issued the Treasury after it received a $10 billion capital infusion from the Troubled Asset Relief Program last October. The Wall Street titan decided not to haggle with Uncle Sam over price, accepting Treasury's $1.1 billion valuation of the warrants and forking over the cash. While Goldman's critics (and there are plenty) can scoff that the investment bank can afford to pay what the government asks after posting a $3.44 billion profit in the second-quarter, the decision is a smart move for the bank's PR, which has taken a beating lately, for a number of reasons. First off it allows Goldman to show some gratitude (genuine or not) for the government riding to Wall Street's rescue last year, while getting out the message that -- unlike some other banks -- the taxpayers were making a nice 23% profit on their 8-month investment in the bank. As the press release reads: "This return is reflective of the government's assistance, which benefited the financial system, our firm and our shareholders," said Lloyd C. Blankfein, Chairman and CEO. "We are grateful for the government efforts and are pleased that this additional money can be used by the government to revitalize the economy, a priority in which we all have a common stake." Accepting Treasury's appraisal also sets up a positive comparison between Goldman and other banks who aren't generally being accused of being at the center of an evil conspiracy to control the government and rob taxpayers. Taking a shot at J.P. Morgan Chase & Co. (NYSE:JPM), which couldn't come to an agreement with Treasury on the value of the warrants, Goldman said that "while there are a number of ways to value the warrants, including through a public auction, we believe that in the context of the extraordinary actions taken by the government to help stabilize the financial system, this valuation of the warrants represents full and fair value." By accepting Treasury's price it puts pressure on other large banks to not get into an ugly fight over repurchasing their own warrants, and possibly giving the government the upper hand to negotiating the buybacks. And lastly it keeps the warrants out of the hands of other parties that Goldman might not want to deal with. As Espen Robak, president of Pluris Valuation Advisors told Dealscape a couple of weeks ago. "If the Treasury feels a bank is offering something unreasonably low, they can always turn around and sell them on the open market. There are hedge funds, institutions and others more than willing to buy these warrants, if they can get them at a good price." - George White

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