Goldman Hedge Fund Can Keep Bank Stake, Fed Says

Mar 15 2011 | 2:49am ET

Goldman Sachs will be allowed to keep its stake in a Tennessee bank because it is held by a bank-owned hedge fund.

The Federal Reserve has approved Goldman's application to keep its nearly 10% voting stake in Avenue Financial Holdings, which is actually held by hedge fund Goldman Sachs Investment Partners. The Fed's okay is needed for a bank holding company to own more than 5% of the voting shares of a bank, and Avenue Financial owns Avenue Bank.

The regulator noted that the Avenue stake is held by a Goldman hedge fund, which made the purchase before Goldman became a bank holding company in September 2008, as a passive investment. According to the Fed, Goldman has promised to keep it that way.

"Goldman has committed not to exercise or attempt to exercise a controlling influence over the management or policies of Avenue or any of its subsidiaries," the central bank said in a statement. The approval "is specifically conditioned on compliance by Goldman with the conditions imposed in this order and the commitments made to the Board in connection with the application."

Avenue received $7.4 million in federal bailout money and has yet to repay it.

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