LITTLE ROCK — In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel and glass skyscraper.
The building was a bargain - and not just becausethe final cost is expected to be $200 million less than the $2.3 billion price the company had estimated when construction began in November 2005. Goldman Sachs also benefited from the government’s determination to avoid losing jobs in Lower Manhattan after the Sept. 11, 2001, terrorist attacks.
Building a new headquarters catty-cornered to where the World Trade Center once stood qualified the firm to sell $1 billion of tax-free Liberty Bonds and get about $49 million of job-grant funds, tax exemptions and energy discounts. Henry Paulson, then Goldman Sachs’ chief executive officer, threatened to abandon the project after delays in addressing his concerns about safety.
To keep the plan on track, state and city officials raised the bond ceiling to $1.65 billion and added $66 million in benefits. The interest expense on the financing is about $175 million less over 30 years than if the company had issued corporate debt at the time, according to data compiled by Bloomberg.
“It was absolutely imperative that Goldman Sachs keep its world headquarters downtown,” says John Cahill, who took part in the negotiations as chief of staff to then-Gov. George Pataki. “They had the financial resources to move anywhere.”
Goldman Sachs, which set a Wall Street profit record of $11.6 billion in 2007, won new and larger concessions from taxpayers in 2008. This time it was the threat of a financial meltdown that prompted the U.S. government, with Paulson as Treasury secretary, and the Federal Reserve to supply an unprecedented amount of aid to firms deemed critical to the financial system, including Goldman Sachs.
The 140-year-old company received $10 billion in capital, guarantees on about $30 billion of debt and the ability to borrow cheaply from the Fed. The Fed’s bailout of American International Group Inc., and its decision to pay the insurer’scounterparties in full, funneled an additional $12.9 billion to Goldman Sachs.
The perception that Goldman Sachs has profited at the expense of taxpayers has fueled public anger.
“People are just really angry; you can see it on the left and the right,” said Andy Stern, president of the 2.1 millionmember Service Employees International Union.
To Chairman and CEO Lloyd Blankfein, who earned $68.5 million in 2007, the firm’s ability to generate profits and reward employees is a boon to society.
“Our shareholders are pensioners, mutual funds and individual investors, and they’re all taxpayers,” Blankfein told investors at a Nov. 10 conference hosted by Bank of America Corp. in New York. “Thepeople of Goldman Sachs are one of the most productive work forces in the world.”
What Goldman Sachs’ work force produces is different from what employees do at other financial institutions, leading some people to question why the firm is entitled to taxpayer support. In the first nine months of 2009, more than 90 percent of the company’s pretax earnings came from trading and principal investments, which include market bets, stakes in corporate debt and equity, and assets such as power plants.
“People who know the industry and know Goldman Sachs know that it is a giant hedge fund, but it’s wrapped in an investment banking wrapper,” says Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston. The public “would be horrified to think that their tax dollars were going to a hedge fund.”
Lucas van Praag, the partner responsible for the firm’s communications and the only Goldman Sachs executive willing to comment for this story, denies any similarity to hedge funds, the mostly private and unregulated pools of capital that managers use to buy or sell assets while participating in the profits.
“The assertion that we’re a hedge fund displays a substantial misunderstanding of our business,” says van Praag, 59. “We are in business primarily to facilitate transactions for our clients, and over 90 percent of our revenue and earnings come from doing that.”
Goldman Sachs repaid the $10 billion it received in October 2008 from the U.S. Treasury’s Troubled Asset Relief Program, and taxpayers got a return: $318 million in preferred dividends and $1.1 billion to cancel warrants to buy company stock the government was granted.
Business, Pages 19 on 12/22/2009