Goldman IPO Filing Points Up Some Volatility
Goldman, Sachs & Co., the nation’s biggest investment banking partnership, on Monday disclosed details of its trading business that reveal its earnings could be more volatile than those of rivals.
The 129-year-old firm, in a Securities and Exchange Commission filing related to the company’s planned initial public stock offering, said net revenue from trading and investing its own money in companies and real estate totaled $2.58 billion in the first half of the year. That was 47% of net revenue.
New York-based Goldman “doesn’t have as much diversity as Merrill Lynch & Co. or Morgan Stanley, Dean Witter, Discover & Co.,” said Jake Newman, an analyst at Standard & Poor’s Corp. “It’s a trading firm.”
Morgan Stanley, by contrast, generated 30% of its revenue from trading and investing in the first half. Donaldson, Lufkin & Jenrette Inc., among the biggest securities firms in merchant banking, made about 14% of its revenue from these businesses in 1997.
Goldman’s initial public offering plan comes as major brokerage stocks--which often move in advance of the broader market--are well off their 1998 peaks.
In the filing, the ever-secretive Goldman did not specify the amount it plans to raise or how much of the company will be sold. People familiar with Goldman have said it expects to raise about $3 billion in its IPO in November.
Goldman’s trading revenue, like that of most investment banks, is linked to exposure to markets around the world, making it highly volatile. Merchant banking revenue also varies widely. In the first half of 1998, merchant banking revenue totaled $244 million, compared with $43 million in the first half of 1997.
Merrill and Morgan Stanley have large asset management businesses that provide ongoing fee income to help cushion market declines that crimp trading and merchant banking profits.
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Bear Market for Brokerage Stocks?
Judged by the classic definition of a bear market--a decline of 20% or more--most brokerage stocks already are in bear phases. Worst-hit are some stocks that had been bid up on takeover speculation. An industry sampling:
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52-week Monday Pctg. Stock/ticker high close decline PaineWebber (PWJ) $53.38 $48.06 -10% Morgan Stanley DW (MWD) 97.50 77.75 -20 Bear Stearns (BSC) 64.00 51.25 -20 Charles Schwab (SCH) 46.00 35.81 -22 Merrill Lynch (MER) 109.13 84.94 -23 Donaldson Lufkin (DLJ) 63.75 48.19 -24 Travelers (TRV) 73.50 53.88 -27 Lehman Bros. (LEH) 85.00 61.50 -28 A.G. Edwards (AGE) 48.81 34.38 -30 Hambrecht & Quist (HQ) 46.25 29.38 -36 Jefferies (JEF) 59.50 36.13 -39 S&P; 500 index 1,186.75 1,088.14 -8%
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Source: Reuters
