Banks Fume at Goldman Sachs for Discounted GM IPO Fee

Goldman SachsA Senate Republican expressed concern last week that U.S. taxpayers may not get the full value for their 61% stake in General Motors should the automaker go ahead with its initial stock offering, papers for which are expected to be filed any day now.

In a letter to the White House "czar" overseeing the government's troubled asset relief program (TARP), Iowa's Charles Grassley asked if Treasury and GM "are taking the steps necessary to ensure that the IPO results in the highest possible return for the American taxpayer." Grassley might be happy to know that a step taken by Goldman Sachs (GS), which is playing a smaller role than that of its rivals in the IPO, has substantially reduced the amount banks stand to make on the deal.

Goldman Discount Squeezed Other Banks

In May, Goldman offered to accept a 0.75% fee to underwrite the IPO, Bloomberg reports, citing anonymous sources for the information. That's a fraction of the 3% fee banks typically charge on the largest IPOs and well below the 2% offered by Bank of America (BAC) and other banks that presented to Treasury, the sources said.

Goldman Sachs, which has just been sued for fraud by federal regulators and has ties to GM competitor Ford Motor (F), didn't get a top role in the IPO. The government nonetheless imposed the fee pitched by Goldman Sachs President Gary Cohn and his five-person team on all underwriters, angering the banks, people familiar with the matter said.

That other banks, which include JPMorgan Chase (JPM) and Morgan Stanley (MS), are furious at Goldman isn't surprising, Samuel Hayes, professor emeritus at Harvard Business School told Bloomberg. "They feel it gave the government a real lever to force down fees on the underwriters. But the deal still has a lot of marquee value."

Beyond the prestige of conducting a GM offering, the banks still stand to make $120 million on the deal -- although, if Goldman hadn't pitched its discounted fee, they could have made four times as much.

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JIM

G.M. should have done what Ford did and borrowed from foreign countris instead of ours.

August 17 2010 at 11:21 AM Report abuse -1 rate up rate down Reply
mb1958

Until the government is forced to represent the people of this country the BIG BANKS will continue to RIP us off! and never feel any moral sense of responsibility.

August 17 2010 at 11:04 AM Report abuse +2 rate up rate down Reply
mdbcg

BAH... "More proof that the government shouldn't be blah, blah, blah." You don't get it do you? BECAUSE Goldman made the pitch on the percentage of fees a.k.a. profit for the banks, OUR bailout money will make some of the biggest culprits in this economic mess less money now!!! That BOTHERS YOU?? Banks, who are still cold on lending for small businesses and so on, only get the chance to make $120 million dollars on this deal. Oh, go cry me a river! I live in Charlotte, NC and BOA could go to hell for all I care. Bad government for not letting these greedy jerks make more money off of situations they helped create. This has NOTHING to do with the return that we as taxpayers get on the TARP funds given to GM.

-Weren't you people that are crying about how bad government is the same ones that wanted to see the banks fail in the first place? I swear, I think some of you are just so programmed to gripe about how bad government is and fill in the rest of the blanks with Glenn Beck dogma that you don't even bother to look at the situation and try to understand what is actually means before you start typing away!

August 17 2010 at 11:03 AM Report abuse +1 rate up rate down Reply
srobertcrawford

All the banks and Goldman Sacks should not charge for IPO. All the money should go back into the US Treasury.

August 17 2010 at 10:59 AM Report abuse +2 rate up rate down Reply
detkoncp

THIS IIS JUST MORE PROOF THAT THE GOVERNMENT SHOULD NOT BE RUNNING PRIVATE ENTERPRISE. MORE GOVERNMENT THEFT OF THE TAX PAYER'S MONEY !

WAKE UP PEOPLE.........WE HAVE LOST OUR COUNTRY TO AN ANARCHIST,

August 17 2010 at 10:40 AM Report abuse -1 rate up rate down Reply
amksinny

This is no surprise...........................

August 17 2010 at 10:40 AM Report abuse -1 rate up rate down Reply
Ron and Nancy

Ignorance abounds.

August 17 2010 at 9:41 AM Report abuse +3 rate up rate down Reply
Richard

Four times the GREED necessary to complete the deal

August 17 2010 at 9:33 AM Report abuse +5 rate up rate down Reply
artteet

How about Chicagos Mayor Daly's deal with Morgan Stanley buying the right to operate their parking authority fines and fees for 1.2 billion dollars. Chicago makes hundreds of millions a year on fees (36,000 parking meters and fines) and they gave it away for what equals to less than a penny on the dollar. Morgan Stanley has this contract until 2084, you figure out the math...they will make probably hundreds of billions over that time and the meter fee has tripled since they took over in 2008. Wasnt Obama a Senator representing that state and shouldnt this raised some flags.

August 17 2010 at 9:25 AM Report abuse +9 rate up rate down Reply
artteet

Obama sure has straighten out the Wall St fatcats and banks with 19 Goldman Sachs former executives in his administration and wonderful deals like this. I guess the change with the most transparent administration in our history hasnt taken place yet and its probably Bush's fault.

August 17 2010 at 9:19 AM Report abuse +9 rate up rate down Reply
1 reply to artteet's comment
enigmaticxone

Yeah, the part about it being Bush's fault is right! I second that! Truthfully.

August 17 2010 at 10:36 AM Report abuse rate up rate down Reply