Is Goldman Long-Term Greedy Again?

Photographer: Scott Eells/Bloomberg

200 West Street, which houses the headquarters of Goldman Sachs Group Inc.

Bloomberg’s Elisa Martinuzzi and Charles Penty report today on the maneuvering behind Banco Popular Espanol SA’s 2.5 billion euro ($3.2 billion) share offering. As banks lined up to underwrite the offering, one was conspicuously absent: Goldman Sachs Group Inc.

The story reports that Goldman didn’t want to take the risk of a loss from supporting the stock if shares fell. Worth adding to this analysis is an even better reason for Goldman to skip a weak offering: its brokerage clients will lose money when the shares drop.

That this isn’t the first explanation we reach for these days is an indication of how Goldman’s reputation for being “long-term greedy” (ie. making profits in the long run by not ripping off clients) has slipped. Ultimately there’s little difference between a bank avoiding a bad deal because it’s a risk for the bank or a bad buy for clients. Either way Goldman is doing its job.

The good news about Popular’s offering is that at least it did not opt to sell shares to hapless retail investors through its branch network, as Bankia SA did last year. Maybe somewhere along the line someone developed a sense of shame after Bankia’s offering burned 347,000 buyers, many of them retirees who trusted branch employees. The final plan looks more like a capital call than a traditional share sale: current investors get the chance to buy more shares at a deep discount.

In other words, shareholders have the option of ante-ing up more money, or staying put and having their holding diluted. Professional investors who haven’t already sold are likely to take the discounted shares: if Popular is worth holding at 0.55 euros, it’s worth buying at 0.40 euros a share. Less experienced investors will probably be less able to navigate this.

Cut it up any way you want, and the net outcome is that the least sophisticated investors (read: ordinary folks saving for retirement with what they believed were safe, stable stocks) fare worst in Europe’s banking crisis. A recipe for bad publicity in the long run, and another reason for Goldman to stay away.

A version of this post appeared earlier in the Market Now newsletter. Click here to register at and subscribe to The Market Now daily email.

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