THEY’RE baack!
The Goldman Sachs partners have returned to the market with their plan to make themselves multimillionaires by selling shares to the public. Inside the headquarters building at 85 Broad, some partners who will be paid off by the initial public offering are starting to call their employer ”Goldmine Sachs.”
It’s almost as if no one wants us to remember that this is the same plan that Goldman executives hastily pulled last year when the market turned south, which many believed would sour investor interest in the white-shoe investment bank.
While the market has certainly resumed its ascent toward the much-anticipated Dow 10,000, investment banks and asset management companies haven’t yet recovered fully from last fall’s correction.
Let’s take a look at some of Goldman’s top competitors, the companies that make up the peer group against which its stock offering will be judged.
Merrill Lynch, the biggest U.S. brokerage, is even today trading 28 percent lower than the high it set last year. The same could be said for Lehman Brothers, still 35 percent lower than its 52-week high, and Bear Stearns, 29 percent lower than its one-year high.
Even Citigroup, which has both investment banking and retail banking through its Salomon Smith Barney and Citibank units, is still 20 percent lower than it was last spring.
The failure by the investment banking stocks to keep up with the recovery of the market does not bode well for the Goldman Sachs IPO plans.
In fact, I wonder if Goldman Sachs will win the partner vote it so desperately needs to move forward with this plan. Even though the firm’s management committee unanimously endorsed the idea to sell 10 to 15 percent of the company’s equity to the public, they don’t have the final say.
The partners, who only barely approved the plan last year, will be asked to vote again, on Monday, and if they think their payouts won’t be as big as originally promised, they may withhold their yes votes.
The Goldman partners should also worry about their bosses’ self-stated plans for the proceeds of the offering, if it should go forward.
Jon Corzine and Henry Paulson Jr., the co-chairmen of the firm, say they intend to use some of the money raised to finance acquisitions.
Partners may want to study other recent acquisitions and mergers in the financial services business, especially with an eye to growth in assets under management and employee morale.
When Merrill Lynch acquired Mercury Asset Management, growth in assets under management flattened. And employee morale at Citigroup is of such great concern that management recently held a series of pep rallies to reinvigorate the troops.