Goldman Sachs should not be allowed to payback the TARP early

This is my first post in English in this blog. I have noticed that many of the readers of my post are from countries like the US, Canada or the UK.

First of all, I have to say that I am a Goldman Sachs fan. My first job was as a summer intern at the Investment Banking Division (M&A) of GS at the London office. I worked a couple of years there afterwards. I learnt a lot there and I make a lot of good friends (unfortunately, after ten years and two crisis, most of them are working in other places).

Having said that, I think it is not a good idea to let GS pay the TARP back to the Government early (or at least earlier than the rest of the banks).

GS voluntarily took $ 10 bn in late 2008 from the TARP (and become a bank holding to be able to do so) for several reasons:

1) The fall of Lehman Brothers, AIG and the buyout of Merrill Lynch by Bank of America marked the zenith of the financial crisis. Even sound companies like GS could go broke in just a few days based on rumours and the lack of liquidity in the markets. Bear in mind that GS (like all other major investment banks in the US) is a combination of M&A advisory, a giant hedge fund, trading and brokerage, private equity, private banking and asset management. Several of these businesses are very sensitive to liquidity constrains and could go down pretty quickly. These banks had no access to a significant base of clients' deposits.
2) Being left out of these capital injections (or voluntarily decline them) would have left GS very weak versus other institutions, becoming the preferred target of short sellers for example. On the other hand, rejecting public aid could have been perceived as a "rude" gesture towards a Government decided to help the sector.
3) At that moment, it was not clear which would be the level of intervention of the Treasury in the daily run of the business. All the pay restrictions and increased business supervision came later (or at least were defined later; it was clear that some sort of intervention was inevitable).

At this stage letting GS payback the TARP would mean lifting all these restrictions putting GS at a clear advantage to its weaker competitors, potentially luring their most talented employees with no bonus caps and capturing additional market share in potentially profitable businesses. Thus, these competitors would face more difficulties to improve their condition and could even require additional public intervention. You should bear in mind that in just a couple of days the results of the stress cases would be released, making public which institutions would require additional capital funding.

I understand GS willingness to get released of those restrictions while they have a sound balance sheet and an array of potentially lucrative business opportunities. However, in my opinion, GS should realise the world has changed a lot in the last few months and the Government should not let anybody operate too freely until a new regulation is in place for the financial sector (including supervision, minimum capital requirements, etc.).

On the other hand, what would happen if an institution that repays the TARP now goes under in the coming months for whatever reason? Should the Obama Administration intervene it (again)?

This is applicable to all other institutions that have declared their intention to payback the TARP as soon as possible, like JP Morgan, for example.