Goldman to float in face of fixing probe

Investigation targets 25 Wall Street banks

GOLDMAN Sachs says it will press ahead with its multi-billion dollar share offering tomorrow despite Friday's news that it is to be investigated for price fixing.

The US Department of Justice is investigating allegations that the prestigious American investment bank and some 24 other Wall Street houses conspired to fix underwriting fees on initial public offerings of a wide-range of companies.

Referring to a federal demand for information received by Goldman and other banks, a Goldman spokesman said: "We do not expect this to have any effect on our plans to go public. This request for information by the DOJ is a follow-on to pre-existing legislation."

Before news broke of the inquiry - evoking memories of the US government crackdown on Michael Milken, Ivan Boesky, and other insider traders in the 1980s - the sale of 15 per cent of Goldman for $3.8bn (pounds 2.3bn) was believed to be 10 times oversubscribed.

Analysts said this heavy demand all but ensured the success of the share sale at the top end of the $45-$55 price range proposed in its prospectus.

The final pricing of Goldman shares tomorrow, due after the New York Stock Exchange closes, is thus likely to value Goldman at about $25bn, putting it on a par with the two most successful publicly held Wall Street firms, Morgan Stanley Dean Witter and Merrill Lynch.

Nevertheless, Wall Street reacted to the news of the DOJ investigation with a mixture of shock and a wish to downplay its significance, and brokerage stocks fell.

Lehman Brothers, Morgan Stanley, Donaldson, Lufkin & Jenrette, and Citigroup's Salomon Brothers Smith Barney unit also confirmed they had received subpoenas.

The Justice Department inquiry focuses on one of Wall Street's most profitable lines of business. Securities firms collected more than $2bn last year from initial public offering (IPO) underwriting fees, according to Securities Data.

Government investigators are questioning how those fees are set, after separate, private anti-trust lawsuits alleged underwriters in most cases stuck consistently to a 7 per cent fee.

"This news intrigues me greatly," said Andrew Smithers of London-based fund management advisers Smithers & Co. "Underwriting fees in New York are higher than underwriting fees in the City. I've often wondered why the forces of competition could not narrow the difference."

Wall Street houses claimed the investigation was old news. "There was an article in the National Post, a Canadian paper," said a banker at one.

But the DOJ subpoenas that reached Goldman and other Wall Street firms Thursday were new. They compelled Goldman to amend the filing for its IPO, which is how the news broke in the US media.

Word of the DOJ investigation triggered gallows humour on Wall Street. "Those Goldman guys just can't win. First time round they get hit by Russia," a rival banker said, referring to the postponement of the IPO last August in last year's financial panic. "Now this."

Some bankers questioned the timing of the DOJ subpoenas - coming virtually on the eve of the Goldman share sale. But Goldman itself rejects the notion that the subpoenas were timed to coincide with the IPO.

The roots of the investigation go back to beginning of Wall Street's technology-led IPO boom. Success stories like the flotation of internet bookseller Amazon.com make headlines. For every soaraway success, however, there are numerous flops. Angry investors sometimes sue, naming both the company and its underwriters.

In 1995, for example, Goldman floated MediaMobile, a New Jersey-based pager service. Goldman underwrote $53m shares in the US, and $17m shares internationally through Goldman Sachs International. MediaMobile did not prosper. It is now in bankruptcy. In December 1996, investors filed a class action complaint against it and Goldman seeking compensation.

These class action complaints have been pooled by US district courts, particularly the US District Court for the Southern District of New York. Five months ago, the US government stepped in to examine the allegations contained in such complaints.

The investigation remains in a preliminary phase. But news of it is likely to feed a growing feeling in the US that Wall Street is profiting disproportionately from globalisation. It may also spur European merchant banks to step up attempts to break into the US underwriting market.

Life and Style
Social media users in Mexico who commented on cartel violence have been killed in the past
techTweets not showing up or loading this morning, users say
Sport
premier leagueLive: All the latest news and scores from today's matches
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
News
politics
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker