Goldman puts sell rating on NYSE shares
By: Aaron Elstein
Published: April 23, 2007 - 1:09 pm
Research analysts at Goldman Sachs made a bold call on Monday: They urged investors to sell shares in the NYSE Euronext, while recommending that they buy Nasdaq stock.
Goldman is the third-largest shareholder in the NYSE, which is run by former Goldman President John Thain.
In a research note to clients, Goldman analysts Joshua Carter and Quan Mai said that NYSE Euronext's share price is overvalued and likely to fall to $80 a share due to growing pricing pressure from Nasdaq and other competitors. NYSE's stock fell 4% in reaction to the report, trading at $88.15 midday Monday. At the same time, Goldman recommended that investors buy Nasdaq, whose shares quickly rose 3% to $33.06.
Although NYSE has made big strides in the global exchange-consolidation game by acquiring Paris-based Euronext, while Nasdaq has unsuccessfully bid for the London Stock Exchange, Goldman sees worrisome trends ahead for the world's largest stock market. Specifically, the Goldman analysts said that regulatory changes that take effect in July will hurt the NYSE's business by allowing orders for stocks to be completed at the marketplace that offers the best price.
Those changes could result in a further erosion of business at NYSE Euronext's electronic marketplace, called NYSE Arca. NYSE Arca has seen its share in Nasdaq-listed securities tumble since last December due to increasing competition, the Goldman analysts said, and it could fall further in July when the new regulations take effect. The analysts added that the NYSE could also see continued declines in trades done on its so-called Hybrid market, which uses both floor traders and computers.
"We think it is important for NYSE to work towards improvements but fear a continued loss of share in the meantime and are not particularly optimistic on prospects for a turnaround," the Goldman analysts said.
An exchange spokesman wasn't immediately available for comment.
Goldman was NYSE Euronext's third-largest shareholder as of the of last year, according to Bloomberg, and its bearish remarks mark a shift in how Wall Street's leading investment bank views the exchange. Goldman advised both the NYSE and Archipelago when the two companies agreed to merge in 2005. Mr. Thain was president of Goldman from 1999 until he became CEO of the NYSE in 2004, and NYSE Euronext's president and co-chief operating officer, Duncan Niederauer, is a former Goldman partner.
Although Goldman is a big owner of NYSE Euronext, it is also competing vigorously against the exchange and Nasdaq. Last year, it joined a group of investment banks working to create a rival marketplace called BIDS and is also helping rival banks start a new market in Europe. Goldman is also an investor in the Chicago Stock Exchange. |
