Goldman hit by US inquiry days before $24bn flotation

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The Independent Online
THE US Justice Department has begun an investigation into allegations of price fixing by the big Wall Street investment banks just days before Goldman Sachs, the leading New York securities house, was due to go ahead with its $24bn flotation.

The inquiry follows complaints from investors that the big securities houses have colluded to fix underwriting fees in initial public offerings (IPOs).

Goldman, whose own IPO is due to be completed on Monday, said yesterday it had received a Justice Department subpoena on Thursday seeking information in connection with "an investigation of an alleged conspiracy among securities underwriters to fix underwriting fees".

Details of the action were disclosed in an amended regulatory filing by Goldman. A total of 25 securities houses have been on the receiving end of investor class actions alleging they consistently levy the same underwriting spread of 7 per cent for IPOs, irrespective of size.

In an unconnected development that also threatened to prove embarrassing at this late stage, it was confirmed yesterday that Noel Dunn, Goldman Sachs' co-head of bond syndication for Europe, had left the company for reasons that were not disclosed.

Yesterday's news came just as all seemed set fair for a highly successful listing. By yesterday, the offering was nearly 10 times subscribed, seemingly guaranteeing that the stock would be priced on Monday near the top of $45 to $55 range announced last month, valuing the bank at almost $24bn.

Goldman refused to comment on what impact, if any, yesterday's development would have. Insiders were playing it down, stressing the investigation was industry wide and not specific to Goldman. However, one said: "It is not brilliant timing."

The final pricing decision is to be announced after the New York market closes on Monday, with the shares being traded for the first time on the New York exchange on Tuesday.

The shares would normally be expected to go to a premium on the first day's trading as retail investors who are not being offered shares in the initial sale pile into the market.

The global roadshow, which included presentations by the bank's managing trio Hank Paulson, John Thornton and John Thain to a select band of investors in London, closed in Chicago yesterday. Seats for the penultimate investors meeting in New York's Grand Ballroom on Thursday had to be rationed, with potential investors turned away at the door.

Ray Soifer, bank analyst at Brown Brothers Harriman, one of the few New York brokerages not in the syndicate, said yesterday: "The stock will probably open strongly, but it is not" Mr Paulson was asked by New York investors whether the bank planned to follow the example of rival Merrill Lynch and buy an online Internet brokerage.

A price of $55 a share will put Goldman on a similar rating to Merrill Lynch and Morgan Stanley, even though objectively the stock should trade at a slight discount to these banks because of the higher proportion of Goldman's earnings which are derived from more volatile trading profits.