July 22 (Bloomberg) — Goldman Sachs Group Inc.’s repayments to the government of last year’s bailout money, including an agreement today to repay warrants, generated a 23 percent annualized return for U.S. taxpayers.
Goldman Sachs agreed to the Treasury’s request for $1.1 billion to repay warrants the government received when it invested $10 billion in the New York-based firm last October. The payment is in addition to $318 million in preferred dividends.
That 23 percent return compares with the 42 percent surge in Goldman Sachs’s share price since October, and the 5.1 percent gain in the Standard & Poor’s 500 Index. Goldman’s decision follows criticism of the bank by lawmakers who questioned its decision to set aside a record $11.4 billion to pay employees in the first half of the year.
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The company’s warrant transaction “was the best deal for taxpayers yet,” said Linus Wilson, a finance professor at the University of Louisiana at Lafayette.
The firm is paying about 98 percent of the warrants’ value, based on Wilson’s use of the Black-Scholes and Merton option pricing models. By contrast, he estimates that BB&T Corp. and U.S. Bancorp have struck deals with Treasury to pay less than 60 percent of the value of their warrants.
Unlike JPMorgan Chase & Co., the second-biggest U.S. bank by assets, Goldman Sachs agreed to pay the full amount sought by Treasury for its warrants. New York-based JPMorgan, which has repaid $25 billion it received from the government, said earlier this month that it couldn’t agree with the government on its warrants’ value, leaving them to be sold in a public auction.
