IT’S BEEN DUBBED the apology with a half-billion-dollar gift attached. In an attention-grabbing move this week, Goldman Sachs (GS) said it would launch a $500 million initiative to help small businesses with Warren Buffett as a key adviser, an announcement that coincided by hours with a public mea culpa from CEO Lloyd Blankfein for mistakes in the financial crisis. But it turns out Goldman’s program includes its own discount—the kind that only an investment banker could love.
According to a review of Goldman’s program by SmartMoney in consultation with corporate tax experts, the ultimate price tag of the initiative could be far less than the heavily publicized $500 million. A big chunk of the money is destined for charitable institutions, creating potentially sizeable tax deductions for Goldman, while other portions are being made as loans that Goldman confirms it expects to be repaid with interest.
All in all, tax experts say, the ultimate cost to Goldman could total roughly $136 million to $150 million—70% or more below the half-billion figure that helped generate so much publicity for the firm this week. Interest income from the loans could lower the final bill even more. Asked about the estimates, a Goldman spokesman didn’t comment on the specific figures but defended the program as a boon to small businesses, while giving Goldman “a modest economic return.” For his part, Buffett didn’t return requests for comment.
The program, titled 10,000 Small Businesses, drew a wave of media attention. Its advisory board includes Buffett, a big Goldman investor who is well known for his philanthropy, as well as Harvard Business School professor Michael Porter. While Goldman said explicitly that the small-business program was not designed as a public-relations move, many have interpreted it otherwise. Goldman has been the target of criticism for getting ready to pay out billions in bonuses to executives this year after benefitting from the U.S. government’s Troubled Asset Relief Program, or TARP, during the financial crisis—as well as for missteps that some say contributed to the meltdown.
On Tuesday, the same day Goldman announced 10,000 Small Businesses, Blankfein appeared before a room full of CEOs and journalists at an awards ceremony in which he was named CEO of the year by the Directorship Forum, and said Goldman had “participated in things that were clearly wrong and have reason to regret.” Those comments suggested a turnaround from earlier this month, when Blankfein drew notice for being quoted in an interview with The Times of London saying he is a banker doing “God’s work.”
Here’s why the cost of 10,000 Small Businesses is likely to be lower than the $500 million figure. Half of those funds will be charitable contributions to community colleges and other nonprofit institutions to sponsor business education. At an all-in tax rate of 40% for state, local and federal obligations, that could give Goldman a $100 million savings on its taxes over the next five years, says Robert Willens, an independent tax and accounting analyst in New York and a former managing director at Lehman Brothers.