Gold­man turns down South­ern Europe Banks as cri­sis lingers

The Pak Banker - - Front Page -


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.

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