Goldman turns down Southern Europe Banks as crisis lingers
Goldman Sachs Group, the No. 1 stock underwriter in Europe, has turned down roles in offerings by banks in Spain and Italy this year, the only top US securities firm not to take part in the fundraisings by southern European lenders as the region’s debt crisis stretches to a fourth year.
The firm declined a role in Banco Popular Espanol SA (POP)’s 2.5 billion-euro ($3.2 billion) rights offering this month because it wanted greater protection to avoid potential losses on the sale, sources said.
JPMorgan Chase & Co and Morgan Stanley are helping to guarantee the deal. Goldman also didn’t underwrite this year’s share sales by Italy’s UniCredit SpA and Portugal’s Banco Espirito Santo SA (BES), which drew Bank of America Corp. and Citigroup Inc.
Goldman Sachs, which got 55 percent of its revenue this year from sales and trading, is passing on underwriting fees that could be at risk should the stock drop, as happened with insurer Fondiaria-SAI SpA (FSA) this year. Goldman Sachs President and Chief Operating Officer Gary D. Cohn said a month ago that he sees only a “small” probability that the euro area will stick together, while the firm’s equity strategists are warning investors to be wary of companies that rely on southern Europe.
“Goldman can choose to be selective and make strategic choices about which deals they want to be in,” said Christopher Wheeler, a bank analyst at Mediobanca SpA in London and former equity capital markets banker. Its market position will allow the firm to return to those clients if it chooses, he said.
Goldman Sachs, which held talks with Popular about managing the offering, had sought to underwrite it at a lower price to lure more investors and limit the risk to the sale managers, said a person with knowledge of the situation, who declined to be identified because the talks were private.
“Decisions around underwriting a particular transaction are always based on the circumstances specific to that situation, rather than a general view around markets, sectors or geographies,” Goldman Sachs said in an e-mailed statement. “We cannot comment on transactions where we didn’t play a role, but we remain committed to helping clients throughout Europe to raise capital, manage risk and grow their businesses.”
Officials at Madrid-based Popular declined to comment. Spain’s sixth-biggest lender is selling shares to cover a capital shortfall and avoid taking aid from the state. It’s offering shares at 40.1 euro cents, a 32 percent discount to the price on Nov. 9, the last trading day before the price was set, excluding the value of the rights.
The shares rose 0.7 percent to 55.4 cents at 11:30 a.m. in Madrid today. Investors can order stock through Nov. 28.
Goldman Sachs has a 17 percent share of stock underwriting in Europe, excluding rights offerings such as the banking recapitalizations, data compiled by Bloomberg show. In rights offers, companies give existing investors the opportunity to buy stock first, typically at a discount to the market price. The offerings can last weeks as companies prepare prospectuses and give investors time to sell their rights or buy shares.
The U.S. bank also sought more in fees than Popular was prepared to pay, according to another person. Banks will earn a commission of 2.5 percent on the 2.1 billion euros of stock they have guaranteed, or about 52 million euros, the offering document shows. Popular may pay an additional 1 percent, or 21 million euros, at its own discretion.