As a long-time Goldman Sachs shareholder, I applaud the firm"s decision to raise capital in order to repay the money it received from the government"s Troubled Asset Relief Program. The sooner, the better.
So far, Goldman has escaped the populist firestorm that engulfed American International Group, but don"t think that the passions that prompted the House to pass a punitive 90% tax on AIG bonuses have been permanently sated. With Goldman still doling out $4.7 billion in compensation, it will remain a tempting target, even if thousands of Goldman employees have lost their jobs.
Goldman"s top executives are already subject to TARP restrictions on executive pay. However satisfying it may be to see those highfliers humbled, it"s no way to run an investment bank.
That"s now being vividly demonstrated at AIG. The government, on behalf of us the taxpayers, seems well along the path toward destroying whatever was left of the AIG franchise. The Wall Street Journal reported this week that 20 employees of AIG"s financial products unit have quit (the unit is slated to be dismantled by the end of the year).
The brain drain threatens other bailout recipients as well, including Goldman. Byron Trott, the Goldman banker who oversaw the critical relationship with Warren Buffett, is leaving to start his own firm. Two weeks ago, Goldman confirmed to the Journal that two executives who led a division of the asset-management investment unit were quitting, as well as the co-head of quantitative research.
It"s a truism that an investment bank"s most critical assets are its people. The rest of the country may not like it, but the way to keep those people is to pay them. The ones really responsible for the financial disaster already have been fired, or left before the meltdown, with huge bonuses in their pockets. They"re the ones we should be angry about, not the ones still trying to save their firms.
No doubt, as a Goldman shareholder, I"m thinking like a part owner (however insignificant), and not like an angry taxpayer who, before TARP funds were doled out, had no interest in Goldman"s survival. But now that taxpayers own a part of so many financial companies, maybe it"s time we all start acting more like owners. I would love to watch a reality TV show in which an enraged taxpayer, eager to exact retribution, is installed as AIG"s chief executive and actually runs the place.
I have periodically recommended Goldman shares, most recently when I recommended following Warren Buffett"s strategy by buying calls with a strike price of $105 and high-yielding Goldman bonds. That strategy has paid off; at this week"s price of near $130, Goldman shares are at the highest level they"ve been since last October, and have gained 54% this year. They"ve more than doubled from their November lows. As a result of this run-up, I sold some Goldman calls with a strike price of $125, as I reported last week.
Obviously, Goldman, too, thought it was a good time to sell: It raised $5 billion this week in an offering priced at $123 a share. Nonetheless, I believe Goldman remains a good value for long-term investors, especially once it pays off the TARP money. I wasn"t offered a piece of this week"s Goldman offering, but I was able to add to my holdings shortly after at just $122.50 a share. Now the shares are trading $118.
James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.
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