Goldman likely to remain private a little longer
7:36 pm Eastern Time
By Jack Reerink
NEW YORK, Sept 27 (Reuters) - Goldman Sachs & Co. partners (GS - news) on Monday are likely to keep the 129-year old private investment bank closed to the public a little longer because of global financial turmoil, sources familiar with the firm's plans said.
Goldman's 190 partners, who voted in June to sell 10 to 15 percent of the firm to the public, will discuss during their monthly teleconference call on Monday whether to postpone the stock offering or stick with their original plan to go public in early November.
The firm's decision will come during a week when global markets will be focused on the fallout from Long Term Capital Management and the Federal Reserve will decide if it will ease interest rates.
''The possibility of a delay has already been reported and I think that is a very strong possibility, given the state of the world's markets,'' a Goldman source said on Friday, adding the firm has not set a new timetable.
A Goldman spokesman declined comment.
Goldman and its publicly traded rivals are facing a sudden downturn across most of their businesses because of global economic turmoil and plunging stock markets, a dearth of stock and debt offerings and tough bond trading conditions. As a result, many have have seen their market value plunge by half or more in recent months, which means Goldman's partners would pocket millions of dollars less than they would have before the market decline.
The global financial crisis also gives the partners plenty of other things to think about. Goldman is one of 11 firms that shelled out $300 million apiece to bail out Long Term Capital Management, a Greenwich, Conn., hedge fund that recently lost $4 billion on ill-timed bets in global bond markets. Partners will discuss the bailout on Monday, the Goldman source said, adding the firm has no direct loans outstanding to the fund.
Long Term Capital's problems, however, are likely to stretch beyond its direct creditors. Bond markets -- a major profit source for Goldman -- could become unsettled if the hedge fund fails to liquidate its estimated $80 billion of positions in an orderly fashion.
Similarly, failure by the U.S. Federal Reserve to cut interest rates this week could cause the already battered U.S. stock market to plummet. This could depress brokerage shares, which function as a proxy for the broader market, even further, and wipe out any investor appetite for new stock offerings.
The dimmer outlook for securities firms has fueled talk that Goldman, one of the world's premier investment banks, would postpone its offering, although top executives told employees this month plans remained on track to go public.
''I think they want to go ahead almost no matter what, but they'd be better off waiting because (brokerage) valuations are so bad,'' a former Goldman partner said. ''You've got everybody focused on it, so some time in the next six months they've got to go public unless there's a (market) meltdown.''
There was little talk of a stock market slump in June, when Goldman's partners voted to go public to beef up the firm's $6.6 billion capital base and give it a new currency, stock, to make acquisitions and attract top talent. Examining rivals such as Merrill Lynch and Co. and Morgan Stanley Dean Witter & Co., partners and analysts estimated a public offering could value Goldman at $25 billion to $30 billion, or more than four times the value of its assets minus liabilities, or book value.
''At the time they were looking at a multiple in the area of four times book value, and right now they would probably be looking to get something in the order of two times book,'' said securities analyst Michael Flanagan. ''The change is so stark, can Goldman afford to leave $15 billion on the table?''
The industry's changing fortunes were reflected in big declines in third-quarter profits, from the record second quarter, for Morgan Stanley and Lehman Bros. Holdings Inc. this week. Goldman also posted a 27 percent drop in pretax profits to $754 million in its third quarter ended Aug. 28.
''They had a bad third quarter, and we're still seeing additional market volatility,'' said Kathleen Smith, a portfolio manager for Renaissance Capital's $8 million initial stock offering fund. ''They may feel it's wiser to have their whole year-end audited numbers in the bag. You don't want to come out and disappoint after (the offering).''
The stock market, which has fallen sharply from its record highs in July, has caused many companies to cancel plans to go public. This week a month-long dry spell ended when Internet auctioneer eBay went public, a move that may pump new life into the market for new offerings, some analysts said.
''If Goldman does shelve (its own) offering, that could hardly be interpreted as positive news for other issuers,'' Flanagan said.
Analysts and Goldman insiders said the firm would probably go public sometime since its original reasons for doing so remain valid. Smith noted Goldman would not be selling the whole firm at a depressed price but only a small piece, which could appreciate if brokerage stocks rally. She also said Goldman would sell at a premium to its publicly traded rivals.
Goldman also needs stock to hire and keep talented employees, who increasingly are demanding immediate payouts instead of waiting for years to become partner and then having their capital locked up in the firm, as Goldman's current partners do.
''The attitude is changing,'' the former partner said. ''They need this currency to keep people there.'' (GS - news) (NYSE:LEH - news) (NYSE:MWD - news) (NYSE:MER - news) (New York Newsdesk (212) 859-1725, fax 859-1717) |
