Goldman to repay TARP pending test, U.S. blessing

Goldman Sachs Group Inc is prepared to pay back the U.S. government's $10 billion Troubled Asset Relief Program investment as soon as allowed by regulators, but some hurdles remain, a person familiar with the situation said on Tuesday.

And while the investment bank is considering reducing or hedging its roughly $6 billion stake in Industrial and Commercial Bank of China ICBC Ltd <601398.SS>, such a move has no bearing on its repayment plans, the person said.

Goldman is one of several TARP recipients that plan to repay the money as soon as possible, but the terms of last fall's Treasury rescue financing require banks to replace the TARP funds with permanent capital such as common stock, preferred shares. Another option is paying from retained equity from earnings, the source said.

Banks also must pass a government mandated stress test, which will determine if the bank would remain sufficiently well-capitalized without the TARP money. Those tests are to be completed by the end of next month, the person said.

Ultimately Goldman and other banks will need the blessings of U.S. Treasury and Federal Reserve officials.

The New York Times reported on Monday that Goldman intends to repay its TARP investment to the Treasury within the next month. That is much sooner than the year-end target recently provided by Chief Executive Lloyd Blankfein, the paper said.

Goldman declined to comment.

During the depths of the financial market meltdown last fall, then-Treasury Secretary Henry Paulson insisted nine of the biggest U.S. banks take $125 billion in capital.

Goldman is one of several banks that from the start said it did not need the money. Goldman had just raised about $11 billion from Warren Buffett's Berkshire Hathaway Inc and from a common stock offering.

David Viniar, the firm's chief financial officer, told an investment conference in February the firm was working to repay the investment as quickly as regulators would allow.

But talk of an accelerated repayment was spurred by last week's uproar over bonuses paid to American International Group Inc executives, another recipient of a bailout.

By repaying the TARP capital, Goldman and other banks would also escape compensation caps and other burdens that came with the investment.

In recent weeks Wall Streeters have complained the government's ability to impose new pay restrictions on TARP recipients could lead to an exodus of employees.

The person familiar with the situation also knocked down reports Goldman would sell down its stake in ICBC to raise capital.

Lock-ups on half of the firm's stake, currently worth about $6 billion, expire on April 29 and the remainder in October. After those dates, Goldman can sell or hedge the shares.

Roughly half the ICBC stake is owned by Goldman Sachs with the rest held by various Goldman-managed investment funds. As a result, Goldman proceeds from the shares it can sell next months would amount to no more than $1.5 billion.

Goldman bought its initial ICBC shares in April 2006 for $2.58 billion and, together with its funds, controls a 4.9 percent stake in China's largest bank.

A more relevant source of capital is the $97 billion of cash and liquid securities it held at the end of November.

Goldman is in a better position to spend some of those reserves today because it has been shedding assets and shrinking the balance sheet in the past four months. Goldman had $885 billion total assets at the end of November.

(Reporting by Jon Stempel; Editing by Derek Caney and Andre Grenon)