Bankers in London are now bashing Goldman for screwing client Lloyds Banking Group in the world’s biggest financing last fall ($30+ billion).
Goldman was both an underwriter of the financing AND a buyer of the deal. And some folks are muttering that Goldman-the-buyer changed the terms at the last minute, thus hosing Goldman client Lloyds:
According to four people involved in the capital raising, Goldman – a dealer manager on the debt portion of the £23.5bn transaction – demanded last-minute changes to the structure of a deal it was underwriting. This had the effect of benefiting its position as a bond investor…
According to those involved in the Lloyds refinancing, Goldman insisted on the eve of the deal’s announcement that the extra interest payable on the bonds which were to be exchanged for new ones should be increased to as much as 2.5 per cent, when a consensus of other banks was 2 per cent. The rise followed a surprise cut in the credit rating assigned to the securities, making them a riskier investment.
Goldman, of course, insists there was a Chinese wall separating its advisors and its investors, and there probably was. But you can still understand why client Lloyds might feel reamed.
As Goldman gets ever huger and more powerful, these kinds of situations are only going to increase. Ultimately, the scrutiny alone may force Goldman to break itself up.
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