WALL STREET has been left fuming after an exceptionally cheap pitch from Goldman Sachs led the US Treasury to slash fees for all banking advisers on its impending $20bn (£13bn) flotation of General Motors.
Goldman, which was mired in allegations of securities fraud when it applied for a role in the GM initial public offering (IPO) in May, offered to work for a fee of 0.75 per cent – far below the three per cent usually charged by corporate finance houses. Goldman was desperate to secure an underwriting position despite the scandal surrounding the Security and Exchange Commission (SEC)’s case against trader Fabrice Tourre.
The US government forced other banks to match Goldman’s challenge, reducing their potential haul from $600m to $150m and sparking irritation among senior dealmakers. Among those affected are lead managers JPMorgan, Morgan Stanley, Bank of America and Citigroup. Goldman eventually landed a less prominent place in the IPO line-up along with Credit Suisse.
Jacob Frenkel, a lawyer at Maryland-based Shulman Rogers, told City A.M.: “This comes down to the fundamental premise that industry leaders set prevailing market prices.”
GM is expected to file its IPO prospectus with the SEC as early as this morning after making tweaks to take into account the surprise departure of chief executive Ed Whitacre.