Blogging Goldman's Agreement With Treasury

With Goldman Sachs announcing its intention to be the Snake Plisskin of TARP, I thought it might be a good time to take a closer look at how one escapes from the Treasury's Capital Purchase Program (CPP).

FinancialStability.gov has a great new page with links to all the various CPP agreements. The standard CPP terms envision a three year relationship between the bailed-out bank and the Treasury. Section 5 of the Standard Terms provides that the securities issued to Treasury may not be redeemed "prior to the dividend repayment falling on or after the third anniversary of the Original Issue Date."

If the bank wants out before three years they have to get permission from the "Appropriate Federal Banking Agency" and they have to sell Tier 1 equity (a "Qualified Equity Offering") amounting to 25% of the value of the securities issued to Treasury (the "Minimum Amount"). Goldman got $10 billion from the CPP so they need to sell $2.5 billion in equity to throw off the yoke of Treasury.