Goldman Sachs soars in trading debut

33 percent share gain makes firm third-largest U.S. securities firm

Investment banks

May 05, 1999|By BLOOMBERG NEWS

NEW YORK -- Goldman Sachs Group Inc. rose 33 percent on its first day of trading as a public company yesterday, giving the 130-year-old investment bank the third-largest market value among U.S. securities firms.

The shares rose $17.375 to $70.375, vaulting the firm ahead of Merrill Lynch & Co. Inc. in terms of market worth. No. 1 is Morgan Stanley Dean Witter & Co., and No. 2 is Charles Schwab Corp. The shares rose as high as $77.25 on 22.3 million shares traded, the third-most of any stock.

Goldman Sachs, long accustomed to the title of Wall Street's premier investment bank, used its expertise to ensure its stock soared when it started trading, investors said. It sold only 69 million shares -- 14.8 percent of the company, restricted those who could buy them and set the initial $53 price below what it could have gotten, they said.

"They did a great job getting what they wanted," said Mark Dawson, a portfolio manager at Rainier Investment Management in Seattle, which bought Goldman Sachs shares. "They didn't price it aggressively, guaranteeing it would go up."

With so little available, Goldman Sachs only placed shares with favored institutional clients and its wealthiest private investors. Money managers who got shares at the outset said they received 5 percent to 10 percent of what they sought.

"We wish we had more," said Paul Stocking, an equity analyst who helps manage $5.5 billion at American Express Financial Advisors in Minneapolis. "We knew there was potential for this."

The strategy put Goldman Sachs shares at a premium compared with its rivals. At $70, Goldman Sachs trades at 20.3 times estimated 1999 earnings of $3.45 a share, the average forecast of 12 brokerage firms that helped underwrite the share sale. Merrill closed yesterday at 15.8 times estimated 1999 profit of $5.14 a share; Morgan Stanley traded at 16.3 times forecast earnings of $6.01 a share.

"The premium is totally understandable, given the unique status of Goldman," said Dawson.

Yesterday's gain also added millions to the holdings of the firm's top executives. Chief Executive Officer Henry Paulson, with 4.13 million shares, saw his stake rise $71 million to $290 million. Vice Chairman Robert Hurst's stake rose $64 million to $267 million, while that of Jon Corzine, the former CEO who is leaving the firm this month, rose $76 million to $310 million.

Executives, who cannot sell any shares for three years, were not the only ones to profit: All 13,000 Goldman Sachs employees received shares.

"We're ecstatic," said Sonya Smith, a legal assistant, as she left Goldman Sachs' New York headquarters after the market closed.

The market boosted Goldman Sachs' value as much as $1.59 billion, more than three times the first-day gain of Internet retailer Inc., whose 10 million shares appreciated $530 million, or $53 each, on their first day March 30.

Goldman Sachs, founded in 1869 by Marcus Goldman, a German immigrant and former retailer, was the last private Wall Street partnership that could compete with larger publicly traded firms. The company was the market leader in advising on mergers and acquisitions and in new stock sales over the five years through 1998. In its first quarter, Goldman Sachs earned a record $1.2 billion.

Pub Date: 5/05/99

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