Prompt repayment of TARP Funds may be in the best interests of Shareholders; hasty repayment probably is not. An incentive inherent in the repayment of TARP Funds "is being able to stop making dividend payments to the government." See Jim Puzzanghera and Walter Hamilton, "Bank Bailouts Appear to be Paying Off" (Los Angeles Times Online, Friday, December 4, 2009). At a prevailing rate of 5% to 8% depending on whether the TARP Funds were received in the first or second wave, see id., getting out from under paying dividends to the Federal Government would seem to be in the best interests of Shareholders when the Officers and Directors of the Corporation can make more than 5% to 8% with the money that would go to pay such dividends.
Similarly, making major Bonus payments in huge amounts may or may not be in the best interests of Shareholders. Goldman Sachs was recently moving hard to convince Shareholders that making major Bonus payments is in their best interest. See Susanne Craig, "Goldman Seizes the Offensive on Pay" p. C1, col. 1 (Wall Street Journal, "Money & Investing" Section, Thursday, December 3, 2009), subscription required to read the entire article online. Parenthetically, more recently Goldman Sachs announced that it would make Bonus Payments only in stock, not in cash. Jenny Anderson, "Goldman Sachs Alters its Bonus Policy to Quell Uproar" (New York Times Online, Friday, December 11, 2009).
Nonetheless, if the effect of making Bonus Payments in any form has the effect of diluting the value of Shares, one has to wonder how that could possibly be in the best interests of the people holding those Shares. Cf. Andrew Ross Sorkin, "Dealbook/Bailout Refund is All About Pay, Pay, Pay" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, December 8, 2009): "Bank of America was so desperate, in fact, that it diluted its own shareholders by selling new shares worth $18.8 billion to replace some of the funds it is returning."
At the same time, Treasury Secretary Timothy Geithner gave an interview to Albert Hunt on Mr. Hunt's Bloomberg television show, "Political Capital," questioning the payment of Goldman Sachs huge bonuses at all. See Rich Miller and Christine Harper, "Geithner Disputes Goldman Sachs Claims It Didn't Need U.S. Help" (Bloomberg.com, Saturday, December 5, 2009). As the title of the linked news report suggests, Mr. Geithner also contradicted Goldman's oft-repeated (ad nauseam?) argument that Goldman received nothing from the Bailout which it could not have engineered all by itself -- presumably including the elimination of its longstanding rival, Lehman Brothers.
Here is a clip from the interview made available on Bloomberg.com.
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