Goldman Sachs Group Inc. (NYSE: GS) Undercuts Competitors in General Motors IPO

Posted by on Aug 16th, 2010

Several large-cap banks will likely make $120 million from General Motors, however, if it weren’t for Goldman Sachs Group Inc. (NYSE: GS), the banks may have made four times as much, according to a report from the Washington Post.

In a proposal to the U.S. Treasury in May, Goldman Sachs Group Inc. (NYSE: GS) offered to accept a fee of 0.75% according to the report. The offer from Goldman was a fraction of the 3% that banks typically charge on the largest IPOs and well below the 2% offer from Bank of America Corp (NYSE: BAC) and other banks that presented to the treasury.

Goldman Sachs Group Inc. (NYSE: GS), which has been sued for fraud by federal regulators, did not receive a top role in the IPO. Instead, the government imposed the fee pitched by Goldman Sachs Group Inc. (NYSE: GS) on all underwriters, making the bank unhappy.

“The fact the other banks are furious at Goldman is not surprising,” said Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston to the Washington Post. “They feel it gave the government a real lever to force down fees on the underwriters. But the deal still has a lot of marquee value.”

Several of the largest banks in the country are involved in the deal, including JPMorgan Chase & Co. (NYSE: JPM), Morgan Stanley (NYSE: MS), Bank of America Corp (NYSE: BAC) and Citigroup, Inc (NYSE: C) among others. Goldman Sachs Group Inc. (NYSE: GS) will have a role in the offering, as well Credit Suisse,

The report said that five U.S. banks pitched GM and the Treasury on May 19th in Washington and all sent top executives, such as JPMorgan Chase & Co. (NYSE: JPM)’s CEO Jamie Dimon and Morgan Stanley Chairman John Mack.

Treasury officials and General Motors executives were concerned that they would face criticism from the public if they did not accept Goldman Sachs Group Inc. (NYSE: GS)’s low bid. The officials decided to use the bid from Goldman Sachs Group Inc. (NYSE: GS) and impose it on all banks to avoid the criticism.

“The investment banks have always been cutthroat in their competition,” Hayes said. “I don’t think they did it just to squeeze their competitors. They were probably serious.”