Goldman loses face after $15m effort to prop up Lazard's float

Goldman Sachs' reputation as one of Wall Street's most successful advisers has taken a hit after the investment bank spent millions of dollars in an unsuccessful attempt to prop up Lazard's initial public offering earlier this month.

Goldman Sachs' reputation as one of Wall Street's most successful advisers has taken a hit after the investment bank spent millions of dollars in an unsuccessful attempt to prop up Lazard's initial public offering earlier this month.

Filings with America's Securities and Exchange Commission show that Goldman, as the lead underwriter on Lazard's IPO, spent $15m (£8.2m) desperately buying the financial adviser's shares as they slumped below their $25 offer price.

The move was a particular setback as Lazard's much-anticipated float was already priced at the low end of the previously stated range of $25 to $27 a share. Traders said the market was especially disenchanted with the fact that an extra 3.5 million shares were added to the new issue at the last minute, putting another $100m into the pockets of Lazard insiders.

Bruce Wasserstein, Lazard's chief executive, has alone walked away with around $292m. In total, Lazard sold 34.2 million shares in its stock market debut on 5 May, raising $855m. As well as Goldman, Merrill Lynch and Citigroup underwrote the deal.

It is normal practice for banks hired by companies to underwrite their flotations, so they can use use their huge balance sheets to support the stock when it goes public.

However, Goldman's equity syndicate ended up buying back more than 10 per cent of Lazard's stock on its first two days of trading, as it fought to keep the shares from sinking.

The verdict of many in the market was that Goldman should have known that investors were not prepared to pay $25 for Lazard's shares.

Lazard's faltering share price is particularly unwelcome for Goldman as it was one of the most talked-about public offerings of the year and the second largest for a securities firm since Goldman's own IPO in 1999.

Goldman was also lead adviser to a similarly unsuccessful and high-profile IPO last month - that of Warner Music Group. The float, which was priced lower than had been expected, went badly and Goldman is believed also to have bought stock to support the share price.