Goldman shoots to 43% premium on first day

SHARES IN Goldman Sachs, the Wall Street investment bank, shot to a 43 per cent opening premium when trading began on the New York stock exchange yesterday.

The stock opened at $76, up $23 from the $53 price set ahead of dealings on Monday, as investors, particularly wealthy retail buyers who were excluded from the initial public offering, scrambled to lay their hands on stock in the aftermarket.

Analysts said that they had expected the shares to show a small opening premium, if only because of a shortage of stock, but nothing like the surge seen yesterday.

"This is," said Ray Soifer, at Brown Brothers Harriman. "This is all driven by supply and demand."

The huge premium came on what by recent standards was a disappointing day on Wall Street with the Dow Jones Industrials index falling back more than 50 points to 10,960 after Monday's record-breaking run, which took New York's benchmark index through 11,000 for the first time.

Yesterday's opening price sets a market value of $35bn on the firm, putting Goldman ahead of its rival Merrill Lynch, which weighs in at $31.3bn, but well behind Morgan Stanley Dean Witter - at $58bn still unassailably the biggest bulge-bracket firm.

On fundamentals, Goldman should have attracted a lower rating than Merrill because a higher proportion of its earnings come from less predictable trading activities.

The $76 a share opening value, means that the chief executive Hank Paulson, who sounded the opening bell at the New York Stock Exchange yesterday, enjoys a paper worth of more than $311m. The holdings of chief operating officers John Thornton and John Thain are worth some $230m apiece.

Goldman tried to float last year, only to pull the issue at the last minute in October after the stock markets crashed following the near collapse of Long-Term Capital Management, the hedge fund. This time the firm left nothing to chance.

Only 51 million shares out of a total of 340 million were offered to the public, most being distributed to partners and employees, who are prevented from selling their shares for anything up to five years.

Wall Street sources said that Goldman had been very selective in placing the stock and had deliberately withheld shares from investors they suspected would flip the stock out immediately into the market.

The firm had also been cautious about the pricing, setting the issue price near but not actually at the top of the $45-$55 range. At that price, the sale raised $2.7bn for the firm. Judging by yesterday's overwhelming demand, the firm could easily have got away with a price closer to $70.

Goldman Sachs was yesterday unabashed at having left so much of the gains on the table for the market. One of those involved in the IPO said yesterday: "This operation is not about raising capital but about going from a partnership to a publicly quoted company. The issue is not where the price is today but where it is three years from now."

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