summer

Goldman Sachs Buys Litton Loan Servicing From C-Bass (Update1)

2007-12-11T11:02:00.000-08:00

Dec. 10 (Bloomberg) -- Credit-Based Asset Servicing and Securitization LLC, a subprime mortgage investor written off by its owners, completed the sale of its Litton Loan Servicing business and named Goldman Sachs Group Inc. as the buyer.

The sale allowed C-Bass to reach an out-of-court restructuring with its creditors, the New York-based company said in a statement today. Litton deals with homeowners on behalf of mortgage companies if the borrowers don't pay their bills on time. While terms weren't announced today, Radian Group Inc., part owner of C-Bass, said last month the unit would be sold for about $467.9 million to an unnamed acquirer.

Goldman, the world's largest securities firm, may be betting it can pick up Litton at a depressed price. C-Bass's owners wrote off their entire equity investment of more than $900 million this year, even while Litton continued to operate. Chief Financial Officer David Viniar said in September that his firm was hunting for ``distressed assets.''

Subprime loans are made to people who have weak credit. With home lenders refusing to refinance borrowers who might default, ``the loans stay in the portfolio longer, making them more valuable,'' Richard Bove, an analyst at Punk, Ziegel Co., said in an interview last month when the Litton sale was announced.

Litton is based in Houston and has more than 1,000 employees servicing more than 400,000 U.S. customers, the statement said.

Why Goldman Bought

C-Bass was among more than 100 mortgage lenders and investors forced to halt operations or find buyers in 2007 amid the worst housing slump in 16 years. Its majority owners were MGIC Investment Corp. and Radian, the nation's No. 1 and No. 3- ranked mortgage insurers.

Blackstone Group LP advised C-Bass, which received legal counsel from Hunton and Williams.

Katie Monfre, a spokeswoman for Milwaukee-based MGIC, Tim Lynch a spokesman for Philadelphia-based Radian, and Peter Cerwin, a spokesman for New York-based C-Bass, didn't return voicemail messages left after business hours.

DATAWATCH - China Nov imports, exports remain largely stable - Goldman Sachs

2007-12-11T10:56:00.000-08:00

BEIJING (XFN-ASIA) - China's imports and exports for November remained largely stable and in-line with expectations, Goldman Sachs (NYSE:GS) said.

China's exports in November grew 22.8 pct year-on-year to 117.62 bln usd, while imports were up 25.3 pct at 91.34 bln usd, reflecting strong demand.

Growth of imports could drop off in the coming months as policy tightening becomes more pronounced, Goldman Sachs said.

However, the increasing intensity of policy tightening is likely to put pressure on domestic demand growth going forward, and therefore the current strength of imports growth is unlikely to be sustained,' it said.

It added that while the trade surplus remained high at 26.3 bln usd, its year-on-year growth rate was low at 14.8 pct, similar to October's 13.5 pct and far below the average growth of 69.4 pct in the first nine months.

Gordon Brown asks Google to help the poor

2007-12-10T10:26:00.000-08:00

Gordon Brown asks Google to help the poor
By Lucy Cockcroft
Last Updated: 9:13am GMT 10/12/2007

The Prime Minister is in talks to involve leading international companies, including internet giant Google and investment banking firm Goldman Sachs, to tackle a “development emergency” in the world’s poorest countries.

Mr Brown said UN poverty targets for 2015 are half way complete
Discussions have been held with 20 major players in the private sector in to persuade them to put their expertise into action to improve skills and infrastructure, and provide investment capital.

Gordon Brown hopes the plan will put the international community back on course to achieve seven UN development goals by 2015, directed at reducing poverty in all its forms including hunger, lack of income, education, and enterprise.

A UN report has shown that the international community is on course to miss goals for tackling poverty, education, health and sanitation, unless something more is done.

Among the companies that have been approached to help ways for increasing growth and encouraging enterprise in poor countries also include telecoms company Vodafone, and American supermarket firm Wal-Mart.

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Gordon Brown said: “We are half way to the target date of 2015, but a long way off track to our goals and face a development emergency.

"2008 should be a development year and mark a call to action from everyone - not just rich and poor governments but civil society, faith groups, trade unions and even the private sector.

“There are 72 million children not going to primary school, in some countries one woman in six dies in childbirth, over a billion people do not have access to safe drinking water.

“The international community needs to face up to this development emergency.

“We know what to do - we need to keep our promises and act. I am therefore calling for an millennium development goals action meeting during the UN general assembly in September to re-examine and galvanise our efforts.”

The Prime Minister is expected to speak on his plans at a conference involving the private sector in London in the spring, at the summer 2008 meeting of the G8 in Japan and a UN session in New York in the autumn.

The emphasis on the role of the private sector marks the start of a new phase in the development strategy, although the role of multinational companies in helping the world’s poorest is likely to be controversial.

Kevin Watkins, editor of the UN’s annual human development report, said achieving growth without attempting to tackle inequality would not put the global community back on course to achieve the millennium development goals.

“We are all in favour of high growth,” he said,
Lady Vadera, development minister, has said that growth was the “single biggest factor separating success from failure” in developing countries.

She will be speaking to multinational corporations about the prospect of initiatives in financial services, mobile telephones and agriculture over the coming year.

Goldman Sachs, AQR Hedge Funds Fell 6% in November (Update3)

2007-12-09T08:51:00.000-08:00

Dec. 7 (Bloomberg) -- Hedge funds run by Goldman Sachs Group Inc. and AQR Capital Management LLC fell in November as swings in financial markets confounded the computer-driven trading models used by the quantitative managers.

Goldman's Global Alpha, which started 2007 with more than $10 billion, dropped 6 percent, bringing the decline for the year to 37 percent, according to an investor in the fund. AQR's $4 billion Absolute Return fund is down 11 percent, after losing about 6 percent last month, said a client of the firm, based in Greenwich, Connecticut.

Losses in November extended beyond quant managers to stock pickers such as James Pallotta, whose Raptor fund declined 3.1 percent. Traders were tripped up by increased volatility, as the Standard & Poor's 500 Index rose or fell by more than 1 percent on 12 trading days last month, compared with four days in October. The Reuters-Jefferies/CRB Commodity Price Index moved more than 1 percent on 10 days in November.

Hedge-fund managers globally lost an average of 1.4 percent in November, bringing the average 2007 gain to 10.2 percent, according to the HFRI Index, a monthly estimate released today by Chicago-based Hedge Fund Research Inc. using a sample of managers worldwide. The benchmark S&P 500 ended the month down 4.2 percent, the most since December 2002.

Raptor and Old Lane

Raptor, overseen by Pallotta for Greenwich, Connecticut- based Tudor Investment Corp., lost 8.5 percent this year, according to investors. The fund had about $8.5 billion in assets in August. Pallotta, who is based in Boston, has posted an average annual return of 19.2 percent since Raptor opened in October 1993, almost double the gain of the S&P 500.

The Old Lane hedge fund acquired this year by Citigroup Inc. lost 1.4 percent in November, trimming its 2007 gain to 2.7 percent, according to a report sent to clients yesterday. The fund, which has about $4 billion in assets, has lagged behind average industry returns since it was started in 2006 by Vikram Pandit and other former Morgan Stanley executives. Pandit is a candidate for the Citigroup chief executive officer job vacated by Charles Prince, according to people familiar with the discussions.

All the fund investors asked not to be named because returns are private. Representatives of the managers declined to comment.

Repeat of August

Multistrategy managers like Old Lane trade a range of stocks, bonds and commodities in an effort to profit from price differences between securities. Such funds gained 0.5 percent on average last month, bringing their gains so far this year to 9.3 percent, according to Hedge Fund Research.

For quant managers, November was a reprise of August, when market volatility swamped their computer models. Global Alpha lost 22.5 percent that month, its biggest monthly decline, on currency and stock trades. On top of the losses, withdrawals may leave the New York-based fund's managers with about $4 billion, investors said.

Some quants fared better. Highbridge Capital Management LLC's Statistical Opportunities fund gained less than 1 percent in both October and November, trimming its 2007 decline to about 14 percent, according to investors. The $1.5 billion global stock fund had been down 16 percent as of Aug. 8, according to a letter sent to investors at that time.

Long-Short Gain

Highbridge's $2 billion long-short stock fund gained about 5 percent in November and 33 percent this year. Long-short managers buy stocks they expect to rise and hedge those bets with short sales. In a short sale, an investor sells borrowed stock expecting to repay the loan with shares repurchased after the price falls. Highbridge, with more than $30 billion in assets, is a unit of New York-based JPMorgan Chase & Co.

New York-based manager D.E. Shaw's Oculus fund gained 1.1 percent last month and 21.5 percent this year. The firm's managers use computer programs to find price discrepancies among securities worldwide. Its multistrategy composite fund returned 1.5 percent in November and 5.1 percent in 2007, according to an investor. D.E. Shaw manages $35 billion in assets.

QIM and Pequot

Quantitative Investment Management LLC, a Charlottesville, Virginia-based hedge-fund manager, gained 3.4 percent in November in its largest fund, bringing its 2007 return to 27.4 percent, according to a Dec. 3 client letter obtained by Bloomberg. The $1.7 billion managed-futures fund uses computer-driven models to select purchases of securities to be delivered at a future date.

QIM was started in April 2003 by Jaffray Woodriff, its CEO; Michael Geismar, its president; and Greyson Williams, who oversees technology operations. The firm manages $2.7 billion, according to the client update.

Pequot Capital Management Inc., Arthur Samberg's Westport, Connecticut-based firm, returned 5.3 percent last month and almost 18 percent this year in its $400 million Short Credit fund. Wagers on rising subprime-mortgage defaults contributed to the gain for manager Steve Zamsky.

``While there is plenty of reason for concern, the contrary view may be that we will get through the current period without a recession or a bear market,'' Byron Wien, Pequot's chief investment strategist and former Morgan Stanley senior stock strategist, said in a December client letter obtained by Bloomberg.

Strategy by Strategy

So-called equity-hedge managers lost 2.4 percent on average last month, making their strategy one of the worst-performing, according to Hedge Fund Research. Such managers bet on rising prices of equities and hedge their risks by also shorting stocks they expect to decline.

Event-driven managers, who bet on securities of companies going through transitions such as mergers and spinoffs, declined 2.1 percent. Funds that focus on the securities and government debt of emerging-market countries lost 2.8 percent, Hedge Fund Research said today in a statement.

Fixed-income arbitrage funds were one of the few to rise in November, with a 1.3 percent average return, compared with the 0.8 percent average gain among the broader universe of fixed- income managers who bet on mortgage-backed, high-yield, convertible and other types of debt.

Among managers who use a variety of securities to bet on economic trends, Clarium Capital Management LLC gained 5.3 percent last month and 24 percent this year. San Francisco-based Clarium, whose $3 billion in assets are managed by Peter Thiel, was helped by wagers that securities firms' stock prices would decline and the price of oil would rise.

Moore Capital Management Inc., the New York-based firm founded by Louis Bacon that has about $13 billion in assets, declined 2 percent last month in its Moore Global Investment Fund Ltd. The fund trimmed its 2007 gain to 15 percent.

Moore Global was hurt last month by a 15 percent loss by its Canadian hedge-fund unit, which is run by former Amaranth Advisors LLC trader Manos Vourkoutiotis and invests money for other Moore funds.

Investec plans subprime lender sale to Goldman Sachs: report

2007-12-09T08:48:00.000-08:00

JOHANNESBURG (Reuters) - South African investment banking and asset management group Investec (INVP.L: Quote, Profile, Research) (INLJ.J: Quote, Profile, Research) is preparing to sell its British sub-prime mortgage lender Kensington to U.S. investment bank Goldman Sachs (GS.N: Quote, Profile, Research), a South African newspaper reported on Sunday.

Discussions over Investec's disposal of Kensington are at an early stage, but could pick up steam early in 2008, according to the Sunday Times.
Investec launched a successful 273 million pounds purchase of Kensington in May in a bid to gain a foothold in the British sub-prime mortgage market. It said at the time it planned to inject money into the asset.

But the wisdom of the deal was soon questioned as banks and other financial institutions were buffeted by a global credit crunch spurred by the virtual collapse of sub-prime lending in the United States and Britain.

Leading banks have taken massive write-offs due to their exposure to sub-prime loans, which are typically made to borrowers with lower credit ratings and at higher risk of default.

But some companies, such as Goldman Sachs, have been left largely unscathed by the chaos and are now taking advantage of what some investors see as attractive valuations for certain assets in the specialty lending sector.

MORTGAGE MELTDOWN

2007-12-08T21:37:00.000-08:00

Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."

Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.

Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?
Those selling the "freeze" have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures. But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures. Rate freezes are at best a tool for delaying the inevitable foreclosures when even the most optimistic forecasters expect home prices to fall. In October, Goldman Sachs issued a report forecasting an incredible 35 to 40 percent drop in California home prices in the coming few years. To minimize losses, a mortgage bondholder would obviously be better off foreclosing on a home before prices plunge.

The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"

The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.

The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?

Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time.

As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.

Paulson became the U.S. Treasury secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.

Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.

If a mortgage bond investor sues Goldman Sachs to force the institution to buy back loans, could Paulson be forced to testify as to whether Goldman Sachs knew or had reason to know about fraud in the origination process of the loans it was bundling?

It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.

I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as "helping working families stay in their homes." That's why these meetings were secret, and reporters and the public weren't invited.

The next time that Paulson is before the Senate Finance Committee, instead of asking, "How much money do you think we should give your banking buddies?" I'd like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs.

The Goldman report in October suggests that rampant investor demand is to blame for origination fraud - even though these investors were misled by high credit ratings from bond rating agencies being paid billions by the U.S. investment banks, like Goldman, that were selling the bundled mortgages.

Freddie Mac Chairman and CEO Richard Syron to Address Goldman Sachs Financial Services...

2007-12-08T21:34:00.000-08:00

Freddie Mac Chairman and CEO Richard Syron to Address Goldman Sachs Financial
Services CEO Conference

MCLEAN, Va., Dec. 7 /PRNewswire-FirstCall/ -- Freddie Mac (NYSE: FRE)
Chairman and CEO Richard Syron will address the Goldman Sachs Financial
Services CEO Conference 2007 in New York City on Tuesday, December 11, 2007,
at 10:00 a.m. Eastern Time.
A live webcast of the speech will be available through a link on Freddie
Mac's Investor Relations Web page at
www.FreddieMac.com/investors/webcasts/index.html. The webcast archive will be
available beginning at approximately 3 p.m., Eastern Time, on Tuesday,
December 11, 2007, and will remain available for approximately six months.
Freddie Mac is a stockholder-owned corporation established by Congress in
1970 to support homeownership and rental housing. Freddie Mac purchases
single-family and multifamily residential mortgages and mortgage-related
securities, which it finances primarily by issuing mortgage-related securities
and debt instruments in the capital markets. Over the years, Freddie Mac has
made home possible more than 50 million times, ensuring financing for one in
six homebuyers and more than four million renters.
SOURCE Freddie Mac

Media, Michael Cosgrove, +1-703-903-2123, or Investors, Dan Smith,
+1-571-382-4732, both for Freddie Mac

CA Jumps After Goldman Sachs Upgrade

2007-12-07T21:27:00.000-08:00

Goldman Sachs Upgrade Sends CA Shares Higher Ahead of Analyst Day
NEW YORK (Associated Press) - Shares of CA Inc. jumped Friday after Goldman Sachs upgraded the management software maker.

Analyst Sarah Friar upgraded CA to "Buy" from "Neutral." She added the stock to the Goldman Sachs "Americas Buy List," calling the company a "favorite turnaround for early 2008."

"We believe cash flow growth will begin to 're-synch' with the company's robust net income growth as we move into next year, driven by margin expansion, and drawing greater attention to this often overlooked name," Friar wrote in a note to clients.

She doesn't expect CA to give specific guidance for fiscal 2009, which starts for the company in April, at its analyst meeting on Dec. 17. But she said the meeting will likely be a positive catalyst for the stock, as she expects the company to give details on its plan for revenue growth in the "mid-high single digits, cash flow growth more in-line with net income growth and margin improvements closer to the 30 percent-plus range."

"This is the first analyst day for CA in years, and the first time CFO Nancy Cooper has been able to formally lay out some detail on vision and targets since she joined the company last year," Friar wrote.

The Islandia, N.Y.-based company, formerly known as Computer Associates, is emerging from an accounting scandal which sent former CEO Sanjay Kumar to prison for 12 years last year. In early November, the company posted a nearly threefold increase in its second-quarter profit.

Shares rose 91 cents, or 3.6 percent, to $26.38 Friday. The stock has traded between $22.46 and $28.46 in the past 52 weeks. Top of page

EXTRA CREDIT: Paulson Faces Tough Crowd On Subprime Strategy

2007-12-07T02:33:00.000-08:00

NEW YORK -(Dow Jones)- Treasury Secretary Henry Paulson may never have had to deal with this sort of pressure before he moved from the helm of Goldman Sachs.

His briefing Thursday on the government's plan to prevent a housing crisis was defending more than just a strategy that can't possibly address the full implications of the subprime market's collapse.

At stake was his personal credibility as a Treasury Secretary with the industry smarts to conjure a market-driven response to the biggest threat to the U.S. economy in almost a decade.

So far, Paulson has yet to enjoy a clear success in tackling this crisis, either from the political angle - the issue of keeping people in their homes - or from the capital markets angle that should arguably be his forte.

Informal Opposition

Though the Treasury's plans on both of these angles enjoys considerable industry support in public - the loan modification deal is backed by the American Securitization Forum - they have drawn widespread informal opposition from market participants.

The government's strategy to avert a mass of foreclosures in the coming year among subprime borrowers is already facing staunch criticism from those who say it won't reach the most embattled homeowners, who can't afford their mortgages at even the current "teaser" interest rate.

And within minutes of the government's briefing Thursday, ratings agency Standard & Poor's - charged with its own share of complicity in the subprime mess - said that the plan to freeze mortgage reset rates for five years could lead to further downgrades to the securities they back.

Paulson's capital market salve is no closer to fruition. Indeed, several weeks after he announced the plan to create a Super SIV, a structured investment vehicle sponsored by three Wall Street heavyweights and administered by an asset manager, the project is still grounded, amid talk of a lack of demand. Instead, banks such as U.K. banking giant HSBC Holdings (HBC) have led the way in taking their tainted investments in these vehicles back onto their balance sheets.

A Long And Winding Road

Paulson himself was clearly on the defensive against such charges Thursday, reiterating that there is "no silver bullet" to dispatch the mortgages crisis. Moreover, he described it as part of an "evolving" policy, thereby reminding everyone that this problem is far from over.

Indeed, this is a problem unlike any that faced his predecessors. William Kline, senior fellow at the Petersen Institute for International Economics, argues that, even if there were a silver bullet, the financial technology involved in the subprime crisis has blurred the target.

In 1989, when then-Treasurer Nicholas Brady intervened in the Latin American debt crises with his loan restructuring plan, there was nothing like the risk dispersion that's been created via synthetic and structured debt deals. "In a sense, Paulson is dealing with a less transparent problem than either the Latin crisis or the LTCM crisis," said Kline.

Crucially,the subprime mortgages crisis is impervious to Paulson's greatest strength. His ties to the market as a 32-year veteran of Wall Street and former Goldman Sachs CEO can't muster the massive consensus he needs for a swift resolution. For this, he must prevent a storm of litigation among the myriad small- and medium-sized institutions holding mortgage-backed securities and the structured products they underpin.

When Long Term Capital Management collapsed back in 1998, then New York Fed Chairman Bill McDonough could run through a rolodex of the leading banks and talk them down from a fire sale of redeemed assets.

"If all these mortgages were held by the 15 largest banks, they could all agree to freeze rates," said Kline.

Instead, they are held by investors around the world, listed on balance sheets from major pension funds to the smallest local governments.

But it is premature to judge Paulson too harshly on these counts. His two most recent predecessors, John Snow and Paul O'Neill, commanded little respect on Wall Street, nor did they enjoy a long or smooth tenure in the administration.

Treasury may nevertheless have gained a better handle on this crisis by now had it been a little swifter to act.

"It would've been better if the Treasury had more ambitious plans outlined earlier," said Douglas Elmendorf, senior fellow at Brookings Institute in Washington. "But I'm pleased at all the steps that they have taken."

Officials will have plenty of time to hone their approach. The clear subtext to Thursday's conference is that the market strain will not ease any time soon. Lending conditions have seized nastily heading into the year end, with soaring rates on one-month lending between banks, and there's no reason to assume that they will fall back in the new year.

"Maybe this will help relax financial markets a bit, but they're still worried about the unknown losses held by financial institutions," Elmendorf said.

It's this massive unknown quantity - even after the string of large-scale writedowns announced by Wall Street firms over the past earnings season - that needs ultimately to be addressed by officials serious about solving the capital markets problem.

"We need to have these positions valued appropriately. " said Joseph Mason, Associate Professor of Finance at Drexel University's LeBow School of Business.

Wells Fargo to Present at Goldman Sachs Financial Services CEO Conference 2007

2007-12-07T02:31:00.000-08:00

SAN FRANCISCO, Dec. 6 /PRNewswire-FirstCall/ -- Wells Fargo & Company
(NYSE: WFC) said today that Chairman Richard M. Kovacevich is scheduled to
deliver a presentation at the Goldman Sachs Financial Services CEO Conference
2007 in New York on Wednesday, December 12, at 9 a.m. Eastern Time.
A live audio webcast of the presentation will be available at the
following addresses: www.wellsfargo.com/invest_relations/presents
cc.talkpoint.com/GOLD006/121107a_rc/?entity=wells.

A replay of the webcast will be available for six months.

Wells Fargo & Company is a diversified financial services company with
$549 billion in assets, providing banking, insurance, investments, mortgage
and consumer finance through almost 6,000 stores and the internet
(wellsfargo.com) across North America and internationally. Wells Fargo
Bank, N.A. is the only bank in the U.S., and one of only two banks worldwide,
to have the highest credit rating from both Moody's Investors Service, "Aaa,"
and Standard & Poor's Ratings Services, "AAA."
SOURCE Wells Fargo & Company

Media, Janis Smith, +1-415-396-7711, or Investors, Bob Strickland,
+1-415-396-0523, both of Wells Fargo & Company

Goldman Sachs buy of Sintonia stake cleared by EU

2007-12-07T02:29:00.000-08:00

BRUSSELS, Dec. 6, 2007 (Thomson Financial delivered by Newstex) -- The European Commission said it has cleared Goldman Sachs (NYSE:GS) Group Inc's Goldman Sachs Infrastructure Partners fund's proposed acquisition of a 5 pct stake in Sintonia SA.

The deal was examined under the EU's 'simplified' merger review procedure for cases which the commission believes do not pose competition concerns.

Sintonia is owned by Sintonia SpA, the infrastructure investment company of the Benetton family, whose indirect assets include stakes in Telecom Italia SpA and Atlantia SpA. (OOTC:ATASF)

In July, the Goldman Sachs fund and Mediobanca Di Credito Finanz SpA -- which is also buying a 1 pct stake in Sintonia -- said they have also committed to underwriting a capital hike for Sintonia that, in the second phase, will allow the two new partners to reach respective stakes of 25 pct and 5 pct, on a fully diluted basis.

China Nov CPI growth seen at decade-high 6.7 pct - Goldman Sachs

2007-12-05T13:35:00.000-08:00

BEIJING (XFN-ASIA) - Goldman Sachs said it expects China's consumer price index (CPI) inflation for November to reach a decade-high 6.7 pct year-on-year.

China's CPI growth has topped six pct over the past three months, reaching highs of 6.5 pct in both August and October.

China is due to announce key November indicators, including CPI, next week.

In a note, Goldman Sachs (nyse: GS - news - people ) said it expects producer price index growth to accelerate to 3.5 pct on the back of higher prices of oil, steel and coal.

China's October PPI was up 3.2 pct year-on-year.

Meanwhile, Goldman Sachs said it expects export growth to hold up, with the trade surplus likely to hit a new record of 27.5 bln usd.

Industrial production growth is forecast to rebound to 19 pct, but fixed-asset investment growth is likely to ease due to the disappearance of low base effects, Goldman Sachs said.

Retail sales growth is forecast to remain steady amid continued strength in income growth, it added.

Growth rates of loans and money supply are likely to see visible deceleration, the note said.

Goldman Sachs added that Chinese authorities are likely to maintain their tightening stance, with one more hike in benchmark interest rates seen before the end of the year.

The central bank is also expected to allow the yuan to appreciate at a faster rate.

Goldman, Morgan, Merrill, Lehman Profit Estimates Cut (Update2)

2007-12-04T19:53:00.001-08:00

Dec. 4 (Bloomberg) -- Wall Street's four-biggest securities firms had their earnings estimates cut by JPMorgan Chase & Co., which said additional writedowns on fixed-income assets and a slowdown in mergers and acquisitions will hurt profit.

JPMorgan analysts led by Kenneth Worthington said New York- based Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. will probably face weak credit markets for the next two to three quarters.

``We expect writedowns of fixed-income inventory and a slowdown in M&A,'' Worthington wrote.
Securities firms and banks have announced more than $50 billion of losses and writedowns for assets linked to the collapse of the U.S. subprime mortgage market this year. Merrill, UBS AG and E*Trade Financial Corp. have ousted their chief executive officers as a result, and Morgan Stanley and Bear Stearns Cos., the fifth-biggest U.S. securities firm, sacked No. 2-ranked executives.

JPMorgan, which is also based in New York, lowered its 2008 earnings estimate for Goldman, the biggest securities firm by market value, to $22.57 a share from $23.50. The bank said Morgan Stanley, the second-biggest of the top four, will probably earn $6.35, instead of the $7.05 estimate JPMorgan previously expected.

Merrill's estimate dropped to $7.82 from $8.05 and Lehman's fell to $7.03 from $7.35.

Goldman Pick

Worthington said JPMorgan favors New York-based Goldman because it's the ``most diversified by product and geography and least dependent on the mortgage business.''

Goldman shares are the only ones to show a gain this year among the biggest U.S. securities firms, rising 14 percent through yesterday. Morgan Stanley is down 23 percent in 2007, Merrill lost 37 percent, and Lehman dropped 21 percent. Bear Stearns Cos. has declined 40 percent this year.

U.S. Stock-Index Futures Fall; Goldman, Merrill Shares Decline

2007-12-04T06:01:00.000-08:00

Dec. 4 (Bloomberg) -- U.S. stock-index futures dropped after JPMorgan said deteriorating debt markets will reduce earnings at Wall Street's four biggest securities firms through next year.

Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. fell after JPMorgan analysts said the brokerages may write down debt-related holdings in the fourth quarter. Brokerages also declined after Punk Ziegel & Co. analyst Richard Bove advised selling shares of Bear Stearns Cos., Goldman and Lehman.

Standard & Poor's 500 Index futures expiring in December retreated 8.1 to 1,467.4 as of 8:33 a.m. in New York. Dow Jones Industrial Average futures lost 67 to 13,282. Nasdaq-100 Index futures slid 15.5 to 2,059.5. Benchmark indexes in Europe and Asia also fell.

U.S. benchmark indexes declined for the first time in five days yesterday after Deutsche Bank AG analyst Mike Mayo said bond losses will hurt brokerage profits. Financial companies, which account for 18 percent of the S&P 500's value, have tumbled 17 percent as a group this year as securities firms and banks announced more than $50 billion of writedowns for mortgage-related assets.

Goldman, Sachs & Co. strategists today reduced their earnings estimates for companies in the S&P 500 to account for profit shortfalls in the banking industry.

Brokerages Slump

Goldman, the world's largest securities firm by market value, dropped $5.89 to $221. Morgan Stanley slipped 53 cents to $51.75. Merrill declined 91 cents to $58.15. Lehman dropped $1.38 to $60.

Slumping credit markets will reduce the securities firms' earnings from debt underwriting and advising on mergers and acquisitions, JPMorgan analysts led by Kenneth Worthington wrote in a research note. The declining value of some debt securities including collateralized debt obligations held by the brokerages may force them to report further writedowns in the fourth quarter, Worthington wrote.

Punk Ziegel's Bove reduced his rating on shares of Bear Stearns, Goldman and Lehman to ``sell'' from ``market perform.''

ConocoPhillips, the third-biggest U.S. oil company, slid 11 cents to $80.14 in Germany. Exxon Mobil Corp., the largest energy company, dropped 34 cents to $88.51.

Crude oil fell after an OPEC delegate said the group would discuss a production increase at its meeting tomorrow. The contract for January delivery slid as much as 96 cents, or 1.1 percent, to $88.35 a barrel in New York.

Michael Moran, Abby Joseph Cohen and Michelle Kim, who are part of Goldman's New York-based research team, reduced their prediction for per-share profit growth this year to 0.7 percent, down from 4 percent previously. Earnings in 2008 will increase 5.6 percent for companies in the benchmark, down from an earlier estimate 7.5 percent growth, according to the report.

Goldman Global Securities Co-Head to Retire

2007-12-03T13:01:00.000-08:00

NEW YORK (Reuters) - Thomas Montag, one of Goldman Sachs Group Inc's (GS.N: Quote, Profile, Research) three co-heads of global securities trading, plans to retire at the end of this month after 22 years at the investment bank, according to an internal memo.

Goldman Sachs confirmed the memo but declined further comment. No successor has been named.

Montag, 50, ascended to one of the biggest jobs on Wall Street in October 2006, succeeding Gary Cohn, who had been named co-president of the investment bank in July 2006.

Montag's departure comes as the meltdown in subprime mortgages, collateralized debt obligations and takeover loans has generated more than $50 billion in losses for investment banks and driven a dozen senior executives from their jobs.

In the memo, Goldman, which has not reported losses or write-downs this year, denied that Montag's departure was linked to the recent environment.

"Tom has played a leading role in the development of the firm's derivatives businesses in Europe and Asia," Goldman Chief Executive Lloyd Blankfein and co-Presidents Gary Cohn and Jon Winkelried said in the memo, circulated on Friday.

Montag joined Goldman in 1985, was named partner in 1994, and became a member of the firm's management committee in 2002.

For three years in the late 1990s he was global head of derivatives based in London. He was best known for leading Goldman's Japan operations during a period in which he was that country's largest individual taxpayer.

Montag returned from Japan earlier this year. In New York, together with Goldman's Asia Chairman Michael Evans and Europe Chairman Michael Sherwood, he led Goldman's largest business, the trading of equities, fixed income, commodities and currencies.

Goldman considers investment to rescue ISTC

2007-12-02T11:06:00.000-08:00

By John Murray Brown in Dublin

Published: December 1 2007 02:00 | Last updated: December 1 2007 02:00

Goldman Sachs is considering an investment in International Securities Trading Corporation, the troubled Irish lender forced into interim examinership this week after one of its banks demanded part repayment of its loans.

According to bankers familiar with the negotiations, the US investment bank has been approached to consider a rescue operation, as have a number of other financial institutions such as Silverpoint Capital and Avenue Capital, two hedge funds.

Officials say it is a reflection of the important role that ISTC played in providing capital to a wide number of financial institutions that international bankers are now ready to consider a rescue.

"This is more than a story about a few Irish investors who lost a load of money," said one advisor.

The Irish investor list is described as Who's Who of Dublin's business elite and includes Denis O'Brien, the telecommunications entrepreneur, and Sean Quinn, the Fermanagh-based business who is reputedly Ireland's richest man.

The group includes a large number of Irish builders and developers.

But it also includes international figures such as Sir Peter Sutherland, the former Irish European Union commissioner and Goldman Sachs International chairman.

The crisis was triggered three weeks ago when Moody's downgraded about €210m (£150m) worth of structured investment vehicle assets, forcing ISTC to announce that it would take a €70m charge.

This downgrading of its debt scuppered plans to raise liquidity via a convertible bond issue, which Dermot Desmond, the financier, had agreed to finance.

Dresdner Bank, one of ISTC's 30-odd lenders, then demanded repayment on a €176,250 debt, which the Irish company was unable to meet, forcing it to seek the protection of the Irish courts.

In its petition to the courts, ISTC estimated the loss to the company of a forced liquidation would be €871m.

The company raised €165m in equity when it launched in March 2005. It also has €280m of subordinated debt issued as notes, which is held by a range of international financial institutions. In addition, it has €155m of unsecured debt. On top of that the banks lent about €2.7bn. The creditor group includes Merrill Lynch, Morgan Stanley, Deutsche Bank, and Citigroup.

Tiarnon O'Mahoney, ISTC chief executive, estimated some banks could lose as much as €100m.

Goldman Sachs (GS) NewsBite - Goldman Sachs to Invest in ISTC

2007-11-30T15:25:00.001-08:00

Goldman Sachs Group Inc. (GS) opened at 232.65. So far today, the stock has hit a low of 228.25 and a high of 234.22. GS is now trading at 228.29, up 3.91 (1.68%). The stock hit its 52 week high of 250.70 in October and set its 52 week low of 157.38 in August. GS fell between June and August, but has been moving sideways recently. Goldman Sachs shares have been rallying today on news that the company and several other investment banks are interested in investing in Irish specialist lender International Securities Trading Corp (ISTC). According to the Irish Times newspaper, ISTC had debts of 871 million euros due to the crisis in the structured investment vehicle market. Technical indicators for the stock are bullish but deteriorating while S&P gives GS a positive 4 STARS (out of 5) buy rating. If you’re looking for a hedged trade on this stock, consider a December bull-put credit spread below the $195 level. GS stock could fall up to 14.6% before expiration and this position would still be profitable.

Goldman Sachs' Road to Riches

2007-11-29T23:09:00.000-08:00

Number of city and state governments that have hired Goldman Sachs to advise them on privatizing highways: 4

Amount that Goldman Sachs clients recently put into a fund that invests in infrastructure such as highways: $3 billion

Amount that Goldman Sachs gave to a PAC established by its lobbying firm, Hillco Partners, to push a 2001 Texas ballot measure allowing privately operated roads: $10,000

Minimum amount Goldman Sachs paid Hillco lobbyist J. McCartt, a former aide to Texas governor Rick Perry, between 2002 and 2005: $95,000

Difference between the amount Goldman Sachs offered for Houston's 83 miles of toll roads in 2005 and what a subsequent study found they were really worth: 86 percent

Number of county commissioners who voted to privatize: 0

Number of Goldman Sachs funds that invested in Australian toll road operator MIG while the bank was advising Indiana on its privatization deal with MIG: 3

Amount it would cost to drive through NYC's Holland Tunnel if a MIG-style toll pricing scheme had been put in place at its inception: $185

Cold Call

2007-11-28T19:41:00.000-08:00

On Wall Street, Bob Rubin was brilliant at finessing risk. As Treasury secretary, his invisible hand saved the economy (not to speak of Clinton's presidency). So why'd he make that embarrassing Enron call?

(Photo: Associated Press)

It's been a few years since former Treasury secretary Robert E. Rubin has swept down from Mount Olympus and saved American capitalism. Since bowing out of government in 1999, Rubin has been ensconced in Citigroup CEO Sandy Weill's office of the chairman doing -- well, it's hard to say exactly what.

He takes calls from billionaire Mexican financiers who want to sell their banks to Citigroup (Citigroup bought Banamex in 2001). He does the lecture circuit, lending his glow to dewy-eyed Citigroup clients all over the world. He even goes down to Washington every now and then to see his old pal Alan Greenspan and primly lecture the Bush administration about blowing the surplus.

For the most part, though, he stays above it all: sitting in his corner office right next next to Weill's with his stocking feet up on the desk while a clutch of Citigroup executives -- including vice-chairman Deryck Maughan, Salomon Smith Barney CEO Michael Carpenter, emerging-markets chairman Victor Menezes, and, most recently, the newly appointed president, Robert Willumstad -- sweat mightily to position themselves as the 68-year-old Weill's successor.

On November 8, though, Bob Rubin's invisible hand got that old itch. Enron's stock was in free fall, and though the energy-trading company was still far from a household name, he feared the company's bankruptcy would be a dire event. Citigroup, one of its longstanding bankers, had more than a billion dollars in loans outstanding to Enron. But Rubin had larger concerns. He had been told by his bankers working on the deal, Salomon's Carpenter and syndicated-loan head Chad Leat, that a rescue package was almost assembled. The night before, a group of the highest-level Citigroup and JP Morgan Chase bankers cobbled together a deal that would merge the fast-sinking Enron with its Houston competitor Dynegy.

But for the deal to go through, the credit-ratings agencies needed to be dissuaded from downgrading Enron's mountain of debt to junk status. With a downgrade, the deal would be off and Enron would most likely go bust. In Rubin's eyes, Enron's implosion would rock not only the energy markets but global markets as a whole -- just as the collapse first of the Mexican peso and then of Mexico's stock market in 1994 had wobbled markets worldwide.

So Bob Rubin did what Bob Rubin does. On his own, without consulting Weill or anyone else, he picked up the phone and made what he thought would be the most discreet of calls to Treasury Undersecretary Peter Fisher. Rubin and Fisher weren't strangers -- Rubin knew him from his Treasury days, when Fisher worked at the New York Fed.

"Hey, Peter," Rubin proposed, "this is probably not such a good idea, but what do you think about putting a call in to the ratings agencies? Maybe they could work with Enron's bankers to see if there might be an alternative to an immediate downgrade."

It was a cheeky proposal: Rubin was asking the federal government to meddle in the private business of the independent ratings agencies, Moody's and Standard and Poor's, on behalf of a company with manifold financial and spiritual links to the current administration. Not to mention the fact that he was a major shareholder and executive of one of the two banks that stood to lose the most if Enron went under. "Gee, Bob," Fisher smartly demurred, "I'm not sure if that's advisable at this point."

Consensus within Treasury at the time was that an Enron flameout, contrary to what Rubin was thinking, would not threaten the financial and energy markets. Rubin's intentions may well have been noble, and he had his own qualms about Treasury's getting involved with the ratings agencies. When he sensed Fisher's hesitation, though, he quickly backed off. He had tried to do his bit, and that would be that.

"He was putting on his éminence grise hat," says Michael Holland of Holland and Co. "Rubin is an arbitrage trader; he makes decisions quickly. He viewed Enron as a financial-markets issue. In his mind, if a downgrade occurs, it's 'Katie, bar the door.' "

Nevertheless, splashed all over the front page of the Times, the gesture made it seem -- and perception is what always counts in the markets -- as if he were flacking for Citigroup's loan book.

The close-to-the-vest phone call has always been the hallmark of Rubin's style -- from his days as a Goldman Sachs arbitrageur to his celebrated stint as the White House's financial-markets shaman. But the secret to Rubin's phone calls, and Rubin himself, is that they remain secret. And they remain secret because the calls never cross that invisible line that keeps the interests of the second party best served by not revealing the call.

Rewind to the booming eighties: takeover fever was rampant, and the kings of Wall Street were not Internet analysts and technology bankers but risk arbitrageurs -- brass-balled traders who bet millions on when and for what price companies would be taken over. Ivan Boesky was a semi-legend, but the best arb man of them all was Goldman Sachs's Bob Rubin.

In the spring of 1984, Rubin bet a chunk of Goldman's capital on a sleepy little company called Houston Natural Gas. It was the hot hostile-takeover stock of the moment: A rival energy concern called Coastal Corporation was buying up shares. Every arb worth his salt was long the stock. It seemed like a done deal, and Rubin bet big, taking on some leverage to spice up his return. But to the surprise of the street, Houston Natural Gas's board sent Coastal packing. In return for a $42 million greenmail payment, Coastal gave up on its merger aspirations. Guy Wyser-Pratte, then of Prudential-Bache Securities and a prominent arbitrage player at the time, remembers the moment well. "It was a terrible shock when news of the greenmail came across my ticker," he remembers. "You've just paid a huge premium for the stock, and all of a sudden the stock price collapses." So Rubin and the arb community dumped their positions for a big loss. Shortly after, HNG's board hired an ambitious, 40-year-old oilman named Kenneth Lay to run the company.

Lay had grand ambitions for the company, and within months it was in play again. This time, the bidder was a rival, an Omaha-based gas firm called InterNorth, and by the summer of 1985, InterNorth had paid $2.3 billion, in a friendly merger, for HNG. The next year, Lay, now CEO of the merged company, christened it Enron. This time, the arbs made out big. HNG's stock shot up from the low 50s to the $70 level, where the deal was priced.

Rubin by then had moved on to management, and leadership fell to Rubin protégé and fellow partner Robert Freeman. Freeman and his team stuck to the sidelines as the stock soared; Goldman Sachs was advising InterNorth on the deal.

But one of the risk arbitrageurs who did make a mint off HNG was Ivan Boesky. Since the mid-seventies, Boesky and Rubin had widely been recognized as the top arb men on the street. A Fortune article in 1977 had dubbed them, together with Wyser-Pratte and a fourth banker from Salomon Brothers, the four horsemen of Wall Street. Practically the same age, they had made millions for themselves and their firms by mastering the black arts of risk arbitrage, relentlessly working the phones, hoovering up information wherever they could find it and then trading on it. Loud, ostentatious, and a shameless epicure, Boesky was the antithesis of Rubin, who preferred his suits off the rack and a strictly light lunch at his desk. For Boesky, though, his information on InterNorth's designs for HNG proved to be too good. As would later be documented in James Stewart's Den of Thieves, Boesky had been buying his information from Martin Siegel, a takeover wizard at Kidder, Peabody, who, the government and more specifically U.S. District Attorney Rudolph Giuliani claimed, was sourcing much of his information from Goldman Sachs's arbitrage desk -- and Bob Freeman.

In February 1987, Giuliani ordered the arrest of Freeman on insider-trading charges. Rubin had been a mentor to Freeman; he had hired Freeman and taught him all that he knew. And Freeman was good, too -- he had made millions for the partnership, and his reputation on the street before his arrest had been impeccable. But as he finally admitted in 1989, when he pleaded guilty to having put a call in to Marty Siegel and selling stock on an inside tip, one thing Freeman had not learned from the master was when not to make that last, skating-too-close-to-the-edge phone call. Giuliani got his Goldman partner, though some said at the time that he was after bigger game -- Rubin himself.

To this day, Rubin resolutely defends Freeman ("Marty Siegel was lying through his teeth," he has been known to say), who was never formally charged with providing information to Siegel on HNG. And his acute dislike for the former mayor still retains its fresh edge. As for Giuliani, he could never make his larger case.

Rubin knew well enough from his days as a deal lawyer at Cleary, Gottleib in the sixties, when all the arbs would call him digging around for deal scoop, that the key to successful arbitrage was not just good information but knowing which information to use: knowing when a company will be taken over, placing your bets, riding the stock up, and, most important, knowing when to unload a position. He witnessed as well how his mentor, Gustave Levy -- a legendary Goldman arbitrageur and senior partner who helped invent and popularize the risk-arbitrage business in the forties and fifties, always seemed to know just enough to make big money on a deal but never enough to make it obvious.

Every morning at 8 a.m., Rubin would show up at his small desk on Goldman's trading floor. Spread out before him would be a slide rule, some yellow legal pads, and a telephone. And he would make his calls -- never shouting, never emoting, never breaking a sweat. With Goldman's monster balance sheet behind him, he could bet up to $50 million on a single position, and Goldman became the 800-pound gorilla in the arbitrage racket in the seventies and eighties.

"Rubin was leagues ahead of Boesky," says a rival arbitrage man from the period. "He had that steel-trap mind, and he always knew how far he could go, who he could talk to, and who he knew would shut up. He was always operating just underneath the radar. And he also had Gus Levy. Gus could call any CEO in the country and ask him: 'Is your deal safe?' That's what made Rubin so good. Goldman always seemed to have the information."

Most arbitrageurs tend to be like Boesky and Levy. To be on the phone that much, to get access to the right kind of information, to keep your shirt dry when your bet goes south -- it all assumes a brashness of character, a largeness of ego.

But Rubin was different. His selflessness, the soft mutter of his voice, the self-deprecatory smirk, that worn, Waspy look -- he just stood out from the crowd. The players, the lawyers, the deal guys, came to him in droves, like moths to light. Some risk was fine -- risk is the very pith of arbitrage -- but knowing when to pull back was the true secret that the other guys could never understand.

In a way, Rubin's call to Fisher was akin to an arbitrage bet. A trade-off, if you will. He might well have scratched out a scenario or two on his yellow legal pad. The downside risk was essentially what happened: Fisher backed off, Enron collapsed, and Rubin's reputation lost a bit of its gloss. But weighed against the possible upside -- Fisher makes the call and a national tragedy is quite possibly averted (Bob saves the day again!) -- in Rubin's mind, that was a risk-reward relationship he could work with. If he had to do it today, friends say, he'd certainly do it again. He had saved Mexico in 1994, an entire country, by weighing similar pros and cons -- why not do the same for Enron?

COVER STORY WALL STREET'S SPREADING SCANDAL

2007-11-27T20:48:00.000-08:00

The web spun by Ivan Boesky threatens to snare more dealmakers and alter takeover rules. Already Congress is talking tough, bankers are turning skittish, deals are coming unstuck, and some raiders are retreating. Still, corporate managers can't breathe easy. LIKE TREMORS signaling great shifts in the earth's strata, the Ivan Boesky insider trading scandal heralds a fundamental change in the takeover game. ) Deals will now be seen in a wholly new light, and the government may change the rules for raiders and traders. To many, the disclosure that arbitrager Boesky was using stolen confidential information from Drexel Burnham Lambert investment banker Dennis Levine proves what was long suspected: that millions in takeover profits have been going to those who rigged the game. Says Chairman James F. Bere of Borg-Warner, itself the target of a recent takeover offer: ''We knew in our own minds that the playing field wasn't level, but if we had told you that, you would have said, 'Show me.' Now we have our proof.'' The takeover surge of the past few years is now suspect. Short of divine omniscience, no one will ever know which deals were tainted and which were clean. But in the aftermath of the Boesky case, proposed takeovers will be scrutinized more closely by financiers and investors. Do they really make economic sense? Or are they the product of too much junk bond borrowing power, greedily and recklessly used? Dealmaking will go right on. Just 11 days after the Boesky newsquake, three fresh bids were unveiled. The Limited, a Columbus, Ohio, retailer, made a joint offer with shopping mall magnate Edward J. DeBartolo Sr. for Carter Hawley Hale Stores. American Brands, a consumer products company, announced that it would try to acquire Chesebrough-Pond's, best known for such products as Vaseline and Ragu spaghetti sauce. A group led by Minneapolis raider Irwin Jacobs proposed to buy Borg-Warner. Many other would-be acquirers are rushing to beat tax law changes that take effect on January 1 (FORTUNE, December 8). The pace of takeovers and financial restructuring will nevertheless slow, though not nearly enough to comfort chiefs of target companies. The leading characters in the scandal will be hauled before Congress and bathed in a glare of publicity not seen since J. P. Morgan Jr. got photographed with a midget in his lap in 1933. This time the pictures will be live, in color, and on your evening news. Any investment bank caught with an in-house crook will be slapped with lawsuits that could wipe out the firm. The downfall of America's most flamboyant arbitrager came when that Wall Street wonder kid Dennis Levine began singing last spring. It appears from SEC documents that he disclosed how he curried favor with Boesky by tipping him off in advance of takeover announcements -- gratis at first. Ultimately Levine and Boesky struck a more formal deal: Levine would feed valuable insider information to Boesky in exchange for up to 5% of the profits Boesky collected on the basis of that information. Boesky, who has agreed to pay a fine of $50 million and return another $50 million in illegal profits to any company, or investor, that can demonstrate it lost money from Boesky's moves, is also cooperating with the continuing SEC investigation. For weeks before the announcement that he had admitted wrongdoing, Boesky is said to have allowed investigators to tap his office telephone. The SEC will not comment on the most persistent rumor: that at least one prominent investment banker has been implicated and is plea- bargaining with the government. WHERE THE SEC'S probe will lead, no one knows. ''When we start one,'' says SEC Chairman John Shad, ''we pursue it down all the avenues it takes us. This doesn't mean that all the people we have subpoenaed have done something wrong, but they may lead us to someone who has.'' The SEC has already subpoenaed Drexel Burnham, the leading underwriter of junk bonds that was also Boesky's investment banker and an investor in one of his limited partnerships (see following story). Among the individuals said to have been subpoenaed are Michael Milken, who runs the firm's big junk bond trading operation in Beverly Hills; Martin Siegel, a managing director in Drexel's mergers and acquisitions department; and Carl Icahn, a big-time raider and Drexel client. Though Boesky will plead guilty to a criminal charge that could put him in prison for five years, some Wall Streeters say he got off easy. The most bitter reaction was from other arbitragers, who lost hundreds of millions when takeover stocks they held fell sharply immediately after the SEC's announcement. In possession of the all-time hottest piece of inside information -- that the regulators planned to go public with his case -- Boesky sold off blocks of those same takeover stocks before they dropped. Says one angry arbitrager: ''That son of a bitch is outrageous.'' While the prices of many takeover stocks recovered some of their lost ground, three major deals fell apart, all because of the new climate of uncertainty. First Wickes Cos. disclosed it couldn't come up with ''satisfactory financing'' of its $1.7-billion offer for Lear Siegler. Then Anglo-French financier Sir James Goldsmith abruptly called off his $49-a-share offer for Goodyear Tire & Rubber, partly because of what he called ''this ghastly Boesky affair.'' Finally Ronald Perelman, who won Revlon last year in a bitter + struggle, dropped his hostile $4.1-billion bid to take over Gillette Co. In an unusual twist to that truce, Perelman's investment banker, Drexel, agreed not to finance the acquisition of Gillette stock for three years. The stocks of all three companies, already down, slipped further after these announcements. Not coincidentally, all three deals depended, directly or indirectly, on high-yield debt securities -- that is, junk bonds. While the current interest rate on long-term government bonds is around 7.5%, recent junk bond issues have sold at yields of 12.5% or more. Risky though the bonds are, Drexel and its king of junk, Michael Milken, convinced a broad clientele of institutional investors that many of them represented greater value than their ratings suggested. Investors, salivating over the promise of fat yields even as interest rates on most other securities were falling, loaded up. Starting in 1984, Drexel pioneered the use of junk bonds to help finance takeovers, especially the unfriendly kind that commercial banks and blue-blood investment firms had tended to shy away from. With Drexel providing advice along with the financing, the raiders came to seem invincible. Now Drexel is ''a bleeding shark,'' says J. P. Guerin, a California investor who heads PSA, the West Coast airline. Drexel's close relationship with Boesky suggests that the firm or some of its employees could become implicated in the affair. Neither Drexel nor any of its employees have been charged with any wrongdoing. But the Boesky news shook the junk bond market for a few days before prices firmed. What if key Drexel players, such as Milken, are implicated in the Boesky episode? Most experts agree with Asher Edelman, a takeover artist now pursuing an unfriendly $1.9-billion bid for Lucky Stores. ''Listen,'' he says, ''Mike Milken is absolutely brilliant, but nobody is irreplaceable.'' If Drexel's role in the junk bond market should diminish, the market would shrink until eager competitors filled the void. Such a shrinkage could also reduce other kinds of credit for a time. In many cases leveraged buyouts or stock raids are financed only in part by junk bonds, which supplement other types of debt. These include commercial bank loans made on the expectation that the borrower will quickly pay back by selling assets of the target company -- with such second-stage sell-offs often financed by junk bonds. If the supply of junk bond credit declines, bankers are likely to be stingier with their own loans. One Chicago banker says he intends to postpone commitments for leveraged-buyout deals until the dust settles. With Drexel crippled, takeover entrepreneurs say, the heaviest impact would be on the biggest deals. ''No one has come close to demonstrating Drexel's capacity to raise big money,'' notes Joseph Rice, president of the New York leveraged-buyout firm of Clayton & Dubilier. Says William Farley, a Drexel client who acquired Chicago-based Northwest Industries two years ago and is now trying to take part of it public: ''The market for megadeals could be severely crimped.'' Some lesser deals could also come unstuck. Investors in junk bonds presumably would demand an even higher yield to make up for the market's lesser liquidity. The portfolio manager of a major university endowment fund says that even slightly higher borrowing costs would have torpedoed many of the deals he has seen over the past year -- especially those that, in his words, ''required an act of faith.'' The broad reappraisal now under way brings into question the role arbitragers, or arbs, play in takeover battles. This role is not always fully understood. Arbs, who manage portfolios for institutions and trade for investment banking houses, are heavily concentrated in New York. Honest arbs fulfill a useful function. They make the financial markets more efficient by ironing out discrepancies in the prices of stocks, options, futures, and interest rates. For example, when a stock option price gets out of line with the underlying stock, the arbs buy the undervalued security and sell the overvalued one, and prices tend to converge again. ARBS PLAY a different role in takeovers. Once an offer is made, or sometimes when it is merely rumored, they bet on the outcome. If they buy the target company's stock, they assume the risk of getting stuck with a loss if the deal falls apart. Meanwhile, they have added to the market's liquidity by enabling itchy stockholders uncomfortable with uncertainty to bail out at a higher price. Many risk arbitragers have been unusually good at sniffing out takeovers. Boesky was too good -- because he was being tipped off. For instance, the day before InterNorth announced a bid to acquire Houston Natural Gas, Boesky's ''crystal ball'' told him to buy 300,000 shares of HNG. Two weeks later he had banked a cool $4.1 million in profits. The new chairman of the Senate Banking Committee, Senator William Proxmire, wants to rein in the arbs. He is considering a proposal that in effect would redefine when a shareholder becomes a full-fledged shareholder. In the event of an unfriendly tender offer, only those who owned the stock at least 30 days before the formal offer would be entitled to have their shares counted. Says Proxmire: ''There's no reason to let the arbs vote in a takeover battle.'' Proxmire, who pushed a similar idea last session without success, also believes hostile bids ought to require the approval of two-thirds of all shares rather than a simple majority. While his proposal will get a better hearing in the new Democrat-controlled Congress, it will be a tough sell. Many will argue that all shareholders should be treated equally. What's more, writing legislation affecting takeovers is extremely complex and is not made easier by the divided stances of various business lobbies. The Reagan Administration has opposed takeover curbs until now, but this could change. After the Boesky news, the White House decided to reappraise its position on insider trading and takeovers. Even if no law passes, the arbs -- indeed, everyone speculating on takeover stocks -- are bound to be more circumspect from now on. Many who relied on Boesky's coattails may exit the risk arbitrage business. As one who plans to stay in puts it, ''The slimiest arbs are getting squeezed out.'' Harold Simmons, who joined the ranks of the big-league raiders with his recent takeover of NL Industries, a chemical and oil services company, would be happy with no arbs at all. ''They force prices to go higher than they otherwise would,'' he says. Another prominent raider, who asks not to be identified, has a different view: ''Arbs grease the skids. They make the target company a little more nervous. You'll still do the deal without them, but it will be slower going.'' Even before the Boesky affair made headlines, the SEC was leaning toward taking one modest advantage away from the raiders: the sneak attack. Under present rules investors have to file notice with the SEC as soon as they accumulate more than 5% of a company's shares. The catch is that they have a ten-day grace period before the filing is due. In the meantime, of course, a raider, or any other investor, can go on secretively building up his position. By the time he files he may actually own 10% or more. He must report significant further changes in his holdings -- again, after ten days. Meanwhile, risk arbitragers, perhaps recognizing the trading footprints of a ; takeover in the making, may start buying shares in the same company. By the time the startled management of a company knows who is buying its stock -- or why -- it may be too late to mount a defense. Some merger experts regard the ten-day grace period as an anachronism. Today's most rudimentary technology enables an acquirer to file the minute he crosses the 5% threshold. If Congress requires that such filings be made within two days, as the SEC hopes, the impact will be felt most by raiders out to greenmail a company, not buy it. That's because an important chunk of their profits from a raid depends on being able to buy a lot of stock cheaply, before other investors bid the price up to reflect the possibility of a takeover. Through publicity alone Congress will keep Wall Street under the spotlight for months. The Senate Banking Committee, and possibly other congressional panels, will be holding hearings. An expected deluge of lawsuits will make more headlines. FMC Corp., the large machinery manufacturer and defense contractor, is studying the possibility of suing Boesky and Goldman Sachs, which advised the company in a recent recapitalization plan involving a buyback of stock. SEC documents say that David Brown, a former Goldman Sachs investment banker who pleaded guilty to insider trading violations earlier this year, passed word about FMC's confidential recapitalization plan to Ira Sokolow of Shearson Lehman Brothers, who passed it to Dennis Levine. He passed it to Boesky, who turned a quick profit by buying FMC shares -- thereby kicking up the price -- before the company announced its plan. Winning such lawsuits could be difficult. To have a good chance of winning, the plaintiff must show that the investment bank breached its fiduciary duty and benefited from doing so. But the mere threat of huge fines -- and the criminal convictions already received by Levine and his youthful confederates -- will have a powerful impact on future dealmaking. Says Sam Zell, a Chicago raider who has acquired three New York Stock Exchange companies this year: ''You get market discipline for many reasons. But the most important is fear. Now there is fear, and there will be discipline.'' THE RAIDERS, roundly condemning Ivan Boesky and his ilk, insist that they will keep doing what they have been doing. Says T. Boone Pickens Jr., the chairman of Mesa Petroleum who made runs at several giant oil companies: ''The main event -- the restructuring of corporate America -- will go on.'' While the scandal has greatly discredited the takeover craze, the key players are far from sated, and the investment banks are tripping over themselves in pursuit of business. Shortly after Boesky's fall Simmons disclosed, ''Just yesterday I got calls from two investment bankers saying that if Drexel goes down, they'd sure like to have my business.'' Most important, the investors whose money has made merger mania possible, many of them the pension and profit-sharing funds of major U.S. corporations, seem in no mood to trade junk bonds for high-grade bonds that yield less. Though deals will be fewer, the quality seems bound to improve. Salomon Brothers' chief economist Henry Kaufman, no friend of raiders, has long predicted that unrestrained takeovers could eventually bring serious trouble for the economy. But recently he told a group of international bankers and finance ministers, ''There will continue to be more mergers, more consolidation.'' If the suppliers of the capital behind those transactions act more judiciously, as Kaufman believes they will after Boesky, future deals will be ''more worthy than some that have been consummated in the recent past.''

New York Authorizes $1.6B in Liberty Bonds For Goldman Sachs's New Headquarters

2007-11-27T13:15:00.000-08:00

The state's Liberty Development Corporation authorized issuance of $1.6 billion in Liberty Bonds yesterday for a $2 billion, 40-story office building near ground zero to house the consolidated world headquarters of Goldman Sachs Group Incorporated.

A spokeswoman for the Empire State Development Corporation, which controls the Liberty agency, said several other approvals are necessary before the bonds are issued, and a public hearing will be scheduled for September. The spokeswoman, Deborah Wetzel, said yesterday's vote approved the bond issue unanimously.

Some mayoral candidates and some civic groups have criticized the Goldman deal, on the ground that the four month delay in completing negotiations with the banking giant cost the city and the state better terms.

Other incentives planned for Goldman include at least $150 million in tax breaks. Yesterday, the Empire State Development Corporation approved about $23 million in job retention grants as part of the larger deal. Other tax incentives will proceed through the Battery Park City Authority, a state agency, according to a spokeswoman for the city's Economic Development Corporation, Janel Patterson.

Following the terrorist attacks of September 11, 2001, Congress authorized the city and the state each to issue $4 billion in tax-exempt Liberty Bonds, with a total of $6.4 billion allotted for commercial projects and $1.6 billion for residential. The Goldman Sachs deal represents 25% of the city's and state's total commercial allotment, and more than twice the second-highest allocation, the $650 million authorized through the city's Economic Development Corporation for a Bank of America building near Bryant Park in Midtown.

The developer who has a lease for the former site of the World Trade Center, Larry Silverstein, has said he is seeking the remaining $3.4 billion in commercial bonds to help finance the Freedom Tower and five other office towers planned for ground zero.

Ms. Patterson said the city corporation had a hand in reviewing the Goldman Sachs application through a joint city-state committee, but the bonds will be issued from the state's bond allocation. The EDC president, Andrew Alper, recused himself from this deal because he is a former executive of Goldman.

Government officials' negotiations with the banking giant over the same office tower unraveled last April due to elements that included security concerns about a nearby underground tunnel. At the time, the terms contained only $1 billion in Liberty Bonds and less money in tax incentives.

A Goldman Sachs spokeswoman, Andrea Raphael, declined to comment yesterday. A spokesman for Governor Pataki, Joanna Rose, issued a statement last night that said: "This project would exemplify why Congress created the Liberty Bond program by spurring development of an anchor tenant immediately adjacent to the World Trade Center site and maintaining and creating thousands of jobs."

The executive director of a development accountability think tank, Good Jobs First, Greg LeRoy, said in a telephone interview that the additional tax breaks included in the real estate deal were unlikely to have influenced Goldman Sachs as significantly as other factors, including the Manhattan work force, the downtown infrastructure, and the proximity to other financial institutions.

Baron Cohen comes out of character to defend Borat

2007-11-26T19:24:00.000-08:00

He is a comedian whose alter ego - a racist, sexist homophobe - has delighted many, appalled some and is selling out cinemas across Britain and America.

Now, after staying resolutely in boorish persona during previous interviews, Sacha Baron Cohen has spoken in depth about his motives in creating his comical anti-hero Borat. The journalist from Kazakhstan who sings anti-Semitic songs and refers to women as prostitutes was created "as a tool" to expose people's prejudices, he said.

The 35-year-old Jewish comedian from London has maintained a long silence over the controversy raised by Borat, whose extreme anti-Semitic remarks have earned censure both from the Kazakh government and from the Jewish community.

In one sketch from Baron Cohen's film Borat: Cultural Learnings of America For Make Benefit Glorious Nation of Kazakhstan, which premiered this month in London, Borat performs a song called "Throw the Jew Down the Well" in a country and western bar in Arizona.

In an interview with Rolling Stone, the comedian revealed he was a devout Jew, observing Sabbath and eating kosher foods, and he referred to the singing scene to defend his inflammatory comedy.

"Borat essentially works as a tool. By himself being anti-Semitic, he lets people lower their guard and expose their own prejudices, whether it's anti-Semitism or an acceptance of anti-Semitism. 'Throw the Jew Down the Well' was a very controversial sketch, and some members of the Jewish community thought it was actually going to encourage anti-Semitism.

"But to me it revealed something about that bar in Tuscon. And the question is: did it reveal that they were anti-Semitic? Perhaps. But maybe it just revealed that they were indifferent to anti-Semitism," he said.

Baron Cohen said the concept of "indifference towards anti-Semitism" had been informed by his study of the Holocaust while at Cambridge University, where he read history. "I remember, when I was in university, and there was this one major historian of the Third Reich, Ian Kershaw. And his quote was, 'The path to Auschwitz was paved with indifference.'

"I know it's not very funny being a comedian talking about the Holocaust, but I think it's an interesting idea that not everyone in Germany had to be a raving anti-Semite. They just had to be apathetic," he said.

He also talked of his astonishment at hearing that the Kazakh government was thinking of suing him over the offence caused by his comic alter ego, and stressed that the "joke is not on Kazakhstan".

"I was surprised, because I always had faith in the audience that they would realise that this was a fictitious country and the mere purpose of it was to allow people to bring out their own prejudices. And the reason we chose Kazakhstan was because it was a country that no one had heard anything about, so we could essentially play on stereotypes they might have about this ex-Soviet backwater. The joke is not on Kazakhstan. I think the joke is on people who can believe that the Kazakhstan that I describe can exist - who believe that there's a country where homosexuals wear blue hats and the women live in cages and they drink fermented horse urine and the age of consent has been raised to nine years old...

"I've been in a bizarre situation, where a country has declared me as its number one enemy. It's inherently a comic situation," he said.

While Borat has drawn much criticism from Kazakh ministers - the government took out a full page ad in The New York Times to promote their country at one stage - Erlan Idrissov, the Kazakhstan ambassador to Britain, admitted to finding some humour in the film.

Baron Cohen, who was born in Hammersmith to an affluent Orthodox Jewish family, is the second of three sons. He went to an independent school in Elstree, and Christ's College, Cambridge, and worked for the investment bank Goldman Sachs before starting his career in television.

Hedge Funds Ditch Japan for Asia, Goldman Sachs Says (Update2)

2007-11-25T21:09:00.000-08:00

By Tomoko Yamazaki and Takahiko Hyuga

Nov. 26 (Bloomberg) -- Hedge funds are shifting Asian investments out of Japan because of lower returns and poor corporate governance in the region's biggest economy, said Kathy Matsui, Goldman Sachs Group Inc. chief strategist in Tokyo.

Japan's average return on equity will be about 10.2 percent this fiscal year, compared with 20 percent in the U.S. and 15.7 percent in Asia, according to Matsui. Return on equity is a measure of how well a company uses its cash to generate profit.

Meanwhile, Japanese companies are fending off purchases by foreign firms seeking to boost share prices, by buying stakes in each other or taking so-called poison pill measures. Some 400 Japanese companies, or 10 percent of all publicly traded firms, have taken steps to ward off hostile takeovers, according to a Nikkei newspaper survey published in October.

``I meet foreigners all the time; there has been disappointment with the Japanese market,'' Matsui said in a telephone interview. ``So Japan has been the favorite short, and that's been the price action.''

Hedge funds investing in Japan have seen outflows of about $7 billion, while Asia ex-Japan has seen inflows of about $17 billion through October this year, according to data provided by Eurekahedge, a Singapore-based hedge-fund research company.

Asia Investing

The Nikkei 225 Stock Average is down 4.3 percent this year in dollar terms and may be headed for its worst year since 2002. The Eurekahedge Asia Ex-Japan Hedge Funds Index has returned 35 percent this year, compared with a 1.9 percent advance in the Eurekahedge index that tracks hedge funds that invest in Japan.

The majority of about 700 international investors attending a Goldman Sachs two-day conference in Tokyo earlier this month were interested in investments in Asia, according to three attendants including Hiromichi Tsuyukubo at Myojo Asset Management Japan Co.

``Interest in Japan was on average lower than last year,'' said Tsuyukubo, who helps manage about $800 million at Myojo Asset, a Tokyo-based hedge fund. ``But the good thing was that the conference attracted a lot of long-term investors such as college foundations and family offices.''

Investors in Japan including Warren Lichtenstein's Steel Partners and Harbinger Capital Partners have had hostile takeovers rebuffed as Japanese companies resort to poison-pill defenses and cross-shareholdings.

Different Standards

Bull-Dog Sauce Co., a condiments maker, in June rejected a takeover approach from Steel Partners and allowed all investors except the fund to convert warrants it issued into common shares. The Tokyo High Court termed Steel Partners an ``abusive acquirer'' in striking down the fund's legal challenge to the move. Japan's Supreme Court later sided with Bull-Dog.

Companies are also reverting to an old practice of cross- shareholding to fend off any possible takeovers. Toyota Motor Corp. and Matsushita Electric Industrial Co., the country's biggest and 10th-largest companies by market value, said in annual filings that they hold stakes in each other. Toyota, located in Toyota City, Japan, said it bought the shares in Osaka-based Matsushita Electric to strengthen business ties.

``Governance standards in Japan on average, relative to the rest of Asia, are actually quite low,'' Matsui said. ``And you have a lot of Asian people wondering, why is Japan so different, why does Japan have different standards?''

The Goldman Sachs Foundation

2007-11-25T18:28:00.000-08:00

The Goldman Sachs Foundation is a global philanthropic organization funded by The Goldman Sachs Group, Inc. The Foundation's mission is to promote excellence and innovation in education and to improve the academic performance and lifelong productivity of young people worldwide. It achieves this mission through a combination of strategic partnerships, grants, loans, private sector investments, and the deployment of professional talent from Goldman Sachs. Funded in 1999, the Foundation has awarded grants of $94 million since its inception, providing opportunities for young people in more than 20 countries.

The Foundation supplements its financial support with social and intellectual capital from Goldman Sachs. By drawing upon the firm's leadership development expertise and commitment to education, the Foundation is able to maximize the impact of its investments.

We invite you to learn more about the the foundation. Please visit our Programs and Projects, Annual Reports and Publications, and Grant Guidelines.

The Street Turns Green

2007-11-24T19:09:00.000-08:00

Goldman Sachs got environmentalists to embrace a utility they loved to hate—and sealed a $45 billion deal.

Believe it or not, Goldman Sachs's interest in green goes beyond its record profits. The firm chauffeurs execs in hybrid cars, and the "Green Tower," its new $2 billion headquarters rising in Manhattan, is so ecofriendly that switching to a meatless diet may be a healthy career move for employees. So you'd expect any deal that reeks of greenhouse gases to set off alarms. Which is what happened when two of Goldman's clients, the private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group, said they wanted to buy TXU Corp., a Texas utility that has become a poster child for global warming.

What to do? Paint the utility green, naturally. Goldman advised its clients to strike a massive compromise with environmentalists: First, nix plans for all but three of 11 coal-fired plants TXU intended to build. And invest $400 million in energy-saving initiatives, like wind power. It won a green thumbs up from environmentalists, who applauded the role of Wall Street's top M&A firm. "Goldman's willingness to make the environment a key component of the deal" helped broker a truce, says Fred Krupp, president of the advocacy group Environmental Defense. With the air cleared, TXU's board last week accepted KKR and Texas Pacific's record $45 billion leveraged-buyout offer.

Wall Street is experiencing a climate change. Elite global investment banks like Citi, J.P. Morgan and Merrill Lynch never used to think twice about filling up the tanks of the nation's biggest polluters looking for cash. But now, many of the same banks that grew rich financing companies' strip mines, oil rigs and SUV plants are advising clients that the way to get the green is to go green. Since the late 1990s, environmentalists have been pressuring bankers to clean up their act, and to make it their business to persuade clients to do the same. "Sometimes we will decline to do a piece of business," says Mark Tercek, Goldman's green czar. "But more frequently, we recommend how we'd like to see the transaction proceed. Usually the client is open to our advice." In an age when Al Gore wins an Oscar for a film on global warming, no one wants to look like they're beating up on Mother Nature.

It looks as though Goldman Sachs is leading the greening of Wall Street. It all started in 2004, when the firm acquired a loan that was secured by 680,000 acres of land in southern Chile near Antarctica, on Tierra del Fuego. Goldman decided to set the land aside as a nature preserve, in collaboration with the Wildlife Conservation Society. "That was the [environmental] epiphany," says Tercek. Since then, Goldman has been on a green jag. In late 2005 it established a formal policy that, among other things, bars the firm from bankrolling projects that "significantly convert or degrade a critical natural habitat." Goldman committed to avoiding business with illegal loggers, and the firm has pledged a 7 percent cut in indirect greenhouse-gas emissions from its offices. Goldman is also fast becoming a developer of renewable energy, following its 2005 purchase of Horizon Wind Energy.

The rest of Wall Street is turning over a new leaf, too. Several major firms have formal green policies. Last week, Lehman Brothers established an internal Global Council on Climate Change, naming as its head none other than Theodore Roosevelt IV, great-grandson of the most formidable environmental president. Firms are cranking out research reports with names like "Climatic Consequences," a 120-page tome from Citi. "We started paying attention back in 2001, long before any other financial institution in the U.S.," says Pamela Flaherty, head of Citi's global community relations. Is that the sound of greenish envy?

True, some of these attempts are, well, pale green at best, but environmentalists are heartened. The investment banks are "very welcome players in what is as much an economic as a science and environmental discussion," says Mindy Lubber, president of Ceres, a network of investors, environmental groups and public-interest advocates that enlists capital markets in the environmental fight. For its part, Goldman says its environmental focus is pivotal to creating "long-term value for our shareholders and serving the best interest of our clients." Or, as Gordon Gekko might say, "Green is good."

100 Best Companies to Work For 2007

2007-11-23T20:59:00.000-08:00

100 Best Companies to Work For 2007

Pay

All stars

All-stars

18 employers have been on the Best Companies to Work For list every year since it launched in 1998.

Company name	2007 rank
Wegmans Food Markets	3
Whole Foods Market	5
W. L. Gore & Associates	10
Cisco Systems	11
Nordstrom	24
Recreational Equipment (REI)	27
Goldman Sachs	36
J. M. Smucker	39
First Horizon National	46
SAS Institute	48
Microsoft	50
Four Seasons Hotels	53
Publix Super Markets	57
Timberland	78
TDIndustries	79
Marriott International	89
Synovus	98
A. G. Edwards	99

World Potential Economy

2007-11-22T22:37:00.000-08:00

Goldman Sachs, a US-based investment banking and securities firm, in a report on world's potential economies has placed Bangladesh on its "Next Eleven" list as a key member.

The report said, "Bangladesh, the world's tiny economy with most corrupt brand, will power the global economy something of the magnitude of the BRICs economies."

The "Next Eleven" is the second term the Goldman Sachs has coined to describe economies with high growth potential, such as the "BRICs" economies encompassing Brazil, Russia, India and China.

Comparing the 22 economies of the G7, BRICs and Next Eleven, the report said Bangladesh will grow faster than predicted earlier. The main reason for the change in projection is the faster growth seen in 2000-05.

The criteria for the Next Eleven list included macroeconomic stability, political maturity, openness of trade and investment policies and quality of education.

The other countries on the list are Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.

In view of the present time that is largely regarded as an Asian Century, the new Goldman Sachs list has four other Asian nations--Iran, Indonesia, Vietnam and the Philippines in addition to the two South Asian countries.

"Investors, always on the lookout for the next big trend, are scouring Asia as the region is home to booming economies, swelling populations and fast-developing markets," an economist said.

Mahmudur Rahman, Board of Investment (BoI) executive chairman, said inclusion of Bangladesh on the Goldman Sachs list of potential economies has proved that the country has great possibilities ahead.

"Major corporate houses including the Tata Group, Dhabi Group, Global Vulcan Energy are showing interest in Bangladesh's economy," he added.

Rahman said world business magnates such as Bill Gates and Ted Turner have visited Bangladesh amid soaring militant activities, which also testify the potentials of the country.

Goldman Sachs Closes GS Capital Partners VI

2007-11-21T21:01:00.000-08:00

NEW YORK--(BUSINESS WIRE)--The Goldman Sachs Group, Inc. (NYSE: GS) today announced it has closed GS Capital Partners VI with $20 billion in committed capital, $11 billion from qualified institutional and high net worth clients and $9 billion from the firm and its employees. This is the sixth global, diversified fund dedicated to making privately negotiated equity investments.

The Fund will invest across a broad range of industries and will seek to create value through meaningful involvement with portfolio companies’ strategic decision-making and operating philosophy. GS Capital Partners VI seeks long-term capital appreciation by committing equity to high-quality companies with superior management in a variety of situations, including leveraged buyouts, recapitalizations, and growth investments to fund acquisitions or expansion.

Goldman Sachs’ Principal Investment Area has over 125 investment professionals in New York, London, Hong Kong, Tokyo and San Francisco with expertise in a wide variety of industries. Selected investments include Ahlsell AB; Allied World Assurance Company Holdings, Inc.; ARAMARK Corporation; Burger King Holdings, Inc.; Capmark Financial Group; Coffeyville Acquisition, LLC; Cognis GmbH; Education Management Corporation; Executive Jet, Inc.; Hawker Beechcraft Corporation; Hana Financial Group; Hexcel Corporation; ISS A/S; Kinder Morgan, Inc.; Kion Group; Kookmin Bank; Mindray Medical International Limited; Nalco Company; Orion Power Holdings; PagesJaunes Group SA; Ping An Insurance Co. of China; Polo Ralph Lauren Corporation; Prysmian Cables & Systems; Sanyo Electric Co., Ltd.; SunGard Data Systems, Inc.; Universal Studios Japan; VoiceStream Wireless Corporation; Western Wireless Corporation; and Yankees Entertainment and Sports Network.

Founded in 1869, Goldman Sachs is one of the oldest and largest investment banking firms. Goldman Sachs is also a global leader in private corporate equity and mezzanine investing. Established in 1991, the GS Capital Partners family of funds is part of the firm’s Principal Investment Area in the Merchant Banking Division. Goldman Sachs’ Principal Investment Area has formed 13 investment vehicles aggregating $56 billion of capital raised. GS Capital Partners VI is the current primary investment vehicle for Goldman Sachs to make large, privately negotiated equity investments.

Contacts

The Goldman Sachs Group, Inc.
Media:
United States:
Michael DuVally or Gia Morón
212-902-2605 or 212-902-4307
or
Europe:
Rebecca Nelson, 44-20-7-552-4358

GS Capital Partners

2007-11-21T09:52:00.000-08:00

Goldman Sachs is a global leader in corporate equity investing. Since 1986, Goldman Sachs has invested over $36 billion of equity in over 600 companies globally. Goldman Sachs is currently investing its GS Capital Partners VI fund, comprised of $20 billion of equity, including over $7.4 billion of capital from Goldman Sachs. As experienced investors, we offer the following unique set of benefits to our investment and investing partners:

Partnership Approach
Our investors rely on our ability to build strong, long-term relationships, to source attractive investments, and to maximize returns. As part of the Goldman Sachs global network, we have access to world-class management teams with expertise in a variety of industries. Moreover, our investment partners include a number of preeminent private equity groups as well as leading corporations, which can bring unique strategic elements to special situations. Together with these partners, we commit resources to help build companies that will achieve and retain market leadership positions. We have built a partnership model based on reciprocity which allows us to create investment opportunities to share with other financial sponsors as well as invest alongside them in investment opportunities that they generate.

Leveraging Goldman Sachs
We provide access to the resources and expertise of Goldman Sachs to our business partners and portfolio companies. These capabilities include sophisticated financial advice in public and private market financings, mergers and acquisitions, real estate, investment and economic research, trading, foreign exchange,and commodities. Furthermore, we leverage relationships with thousands of companies, individuals, and governments worldwide that can be important in structuring and operating successful business ventures.

Structuring Creative Solutions
The scale of our committed capital, Goldman Sachs' sponsorship, and our experienced investment team enable us to take a creative approach to structuring attractive investments. These advantages allow us to consider a broad set of investment opportunities and develop a customized solution that maximizes both the success of our portfolio companies and the potential returns to our investors.

Ability to Execute in Challenging Environments
Our broad access to financing and capital markets, combined with our established relationships, have proven critical to successful execution, even in difficult market environments.

Ongoing Commitment to Our Portfolio Companies
Our investments are designed to support the company's long-term goals and to build value. We believe that management is most qualified to run the day-to-day business and we assist by actively participating in the boards of our portfolio companies. In addition, we take an active role in supporting management and in providing additional resources and capital to assist our portfolio companies.

Goldman pumps in $2bn to bail out hedge fund

2007-11-19T18:58:00.000-08:00

Goldman Sachs is using $2 billion of its own money to fund a $3 billion bailout of a fund that acts on computer analysis

Dearbail Jordan

Goldman Sachs has been forced to inject more than $2 billion (£1 billion) of its own money into a $3 billion emergency package to rescue one of its hedge funds from "significant market dislocation".

The bank acknowledged today that its Global Equity Opportunities fund, which has a $3.6 billion asset value, had received investment from a number of parties including Perry Capital, a hedge fund, and Eli Broad, an American billionaire and philanthropist, to "reduce risk and leverage".

But Goldman admitted to investors today that the rescue would involve $2 billion of its own money, adding that the Global Equity Opportunities fund had “suffered significantly".

Goldman Sachs's Global Alpha and North American Equity Opportunities funds have both had to be given cash injections, but the investment bank declined to reveal how much had been pumped into the funds.

Global Alpha's returns have fallen by 27 per cent this year but Goldman Sachs denied that it would unwind the fund.

The bank laid the blame at the recent market volatility and its impact on "quantitative" funds that use complex computer programmes and risk strategies to determine where to invest billions of dollars of assets.

Quantitative funds invest in both debt and equity.

In recent weeks, debt markets have stagnated as banks have been left with huge chunks of borrowings they have been unable to syndicate to other lenders while global equities took a battering last week

Panic selling spread throughout the markets, leaving quantitative funds battered from both angles.

Goldman Sachs said: "We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals."

In the wider markets, Wall Street rebounded today after the Federal Reserve and other central banks added more cash to their banking systems, helping investors set aside some concerns about credit tightness.

The New York Fed, which carries out the central bank’s market operations, announced minutes after the opening bell $2 billion in overnight repurchase agreements.

The move, following similar injections by the Fed and other central banks last week, appeared to placate Wall Street for now.

In midmorning trading, the Dow Jones industrial average rose 55.03, or 0.42 per cent, to 13,294.57.

Shares in Goldman rose $2.90 to $183.39.

Banks' love affair with hedge funds

2007-11-18T11:47:00.000-08:00

Large banks are eager to manage their own hedge funds, despite recent blowups like Amaranth.

By Shaheen Pasha, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Hedge funds have come under fire in recent days, owing in part to the recent $6 billion Amaranth debacle. But the regulatory run-ins aren't scaring off large banks, which increasingly are turning to hedge funds as a way to create serious growth.

As increased competition for deposit growth and a flattening yield curve continues to put pressure on profits, banks are eager to attract high net-worth clients and diversify their profit stream.

And while banks like Goldman Sachs (Charts) and Morgan Stanley (Charts) have had success in their prime brokerage units, which cater in part to servicing hedge funds, analysts say the big bucks lie in the management of actual hedge fund assets.

Just look at the numbers: Hedge fund managers collect 2 percent of the assets under management regardless of the fund's profitability. If a fund shows a profit, its managers receive an additional 20 percent as a performance fee.

For the banking industry, which is concerned about dwindling profits and higher interest rates, that type of fee structure is particularly appealing, analysts said.

A no-brainer for banks

High net-worth investors continue to demand hedge-fund products, making it a no-brainer for banks to enter the business and meet that demand, said Dick Bove, analyst at Punk Ziegel & Co. Hedge funds are notoriously high risk but offer potentially high returns to investors - thus their appeal to wealthy bank customers.

According to Hedge Fund Intelligence, the U.S. hedge fund industry grew to $984 billion in assets in July - a 32 percent jump from last year.

Industry tracker Hedge Fund Research estimates that the size of the hedge fund industry globally is $1.225 trillion.

"The banking industry is in the business of gathering money wherever it may exist," said Bove. "If the money now exists in hedge funds, it's incumbent on the banking industry to get into that business."

But banks are doing more than just getting in to the business. They're now becoming leaders within the hedge fund industry.

Banking titans Goldman Sachs and JPMorgan (Charts) Asset Management - through JPMorgan's majority stake in Highbridge Capital Management - are currently the largest hedge fund firms in the United States, according to a recent survey by industry magazine Absolute Return.

Goldman Sachs leads the pack with $29.5 billion in assets, while JPMorgan ranks a close second with $28.8 billion. Barclays ranks sixth with $17 billion in assets under management.

It marks an impressive leap for both Goldman and JPMorgan in just one year. In 2005, Goldman Sachs ranked third with $15.3 billion, while JPMorgan wasn't even in the top ten.

As hedge funds aren't required by any regulation to disclose their monthly returns, they're notoriously tight-lipped about their performance, and it's unclear what the banks' profits - if any - are on those assets.

But given the growth in assets under management at Goldman Sachs and JPMorgan, its little wonder other banks are looking to enter the hedge fund arena as well. Morgan Stanley, most notably, has been the subject of Wall Street rumors to the effect that the bank is in talks to acquire a hedge fund. The buzz is that such a buy would fulfill part of CEO John Mack's vision of expanding the company's alternative investments business, which includes private equity.

Still, Wall Street has long had a love-hate relationship with hedge funds. Investors love the promise of high returns, and managers love the heady fees associated with running the alternative investments.

But when a large-scale meltdown occurs - such as Amaranth's roughly $6 billion loss attributable to bad natural gas bets or, worse, the implosion of Long-Term Capital Management in 1998 - the closely guarded hedge fund world suddenly becomes enemy number No. 1, raising fears of litigation and huge losses to investors.

A risky business

Indeed, banks eager to profit from hedge funds may open themselves up to increased legal risks, warned Christopher Whalen, managing director of Institutional Risk Analytics, a financial analysis and valuation firm.

"These things are highly speculative and we're likely going to see a lot more [Amaranths] coming out of the closet," he said. "If a bank-owned hedge fund blows up, the liability trial attorneys will have a field day."

And there are no guarantees that a fund will be profitable for investors or the banks that offer them. Citigroup (Charts), for instance, has been struggling with its in-house hedge fund unit. The company invested about $1.5 billion in Tribeca Global Management and currently has about $2 billion in assets. Citigroup Alternative Investment, which includes Tribeca Global Management, has total assets of about $7.5 billion, according to Absolute Return.

But the unit lost its chief executive, Tanya Styblo Beder, after months of relatively poor returns to investors and high expenses.

There is also concern that, after years of stellar growth, hedge funds may be in for a slowdown that could lead to consolidation. That could spell bad news for banks that enter the business now.

After starting the year with a 3.5 percent gain, the HFRI Fund Weighted Composite Index - a broad industry measure of hedge fund performance - ran into a rough patch in May, June and July. The index showed losses for those three months before rebounding modestly with a 1 percent gain in August.

The number of new funds launched has dropped, but liquidations declined apace. In the first half of 2006, 549 funds were launched and 223 liquidated. Over the same period, there were 1,211 launches and 428 liquidations.

But critics shouldn't be too quick to predict a decline in the hedge fund industry, said Josh Rosenberg, president of Hedge Fund Research. For one thing, the HFRI index is still up almost 7 percent year to date as compared to a 5.8 percent gain on the S&P 500.

Record inflows into hedge funds

And while fund launches fell from last year, the hedge fund industry is in for a record year of inflows.

Through the first half of the year, the hedge fund industry saw inflows of $66.1 billion, with the second quarter accounting for $42.1 billion of those flows - a record for a single quarter. And inflows in the first half of the year beat the $42.1 billion in inflows that the industry recorded for the full year of 2005.

"There's been quite a bit of fluctuation in performance during the course of this year but money still continues to flow into hedge funds," Rosenberg said.

And as money keeps flowing in, banks will continue to have an even stronger incentive to get in on the action.

"I don't know if banks will ever own the entire market," said Denise Valentine, senior analyst at independent consulting and research firm Celent LLC. "But it's a major trend that will continue because banks have tremendous resources both in technology and money to buy these firms."

The Highwaymen

2007-11-17T22:07:00.000-08:00

News: Why you could soon be paying Wall Street investors, Australian bankers, and Spanish builders for the privilege of driving on American roads.

By Daniel Schulman with James Ridgeway

January/February 2007 Issue

"the road is one succession of dust, ruts, pits, and holes." So wrote Dwight D. Eisenhower, then a young lieutenant colonel, in November 1919, after heading out on a cross-country trip with a convoy of Army vehicles in order to test the viability of the nation's highways in case of a military emergency. To this description of one major road across the west, Eisenhower added reports of impassable mud, unstable sand, and wooden bridges that cracked beneath the weight of the trucks. In Illinois, the convoy "started on dirt roads, and practically no more pavement was encountered until reaching California."

It took 62 days for the trucks to make the trip from Washington, D.C., to San Francisco, and another 37 years for Ike to complete a quest, inspired by this youthful journey and by his World War II observations of Germany's autobahns, to build a national road system for the United States. In 1956, President Eisenhower signed the Federal-Aid Highway Act, which called for the federal and state governments to build 41,000 miles of high-quality roads across the nation, over rivers and gorges, swamps and deserts, over and through vast mountain ranges, in what would later be called the "greatest public works project in human history." So vital to the public interest did Eisenhower, an old-style fiscal conservative, consider the interstate highway system, he even authorized the federal government to assume 90 percent of the massive cost.

Fifty years to the day after Ike put his pen to the Highway Act, another Republican signed off on another historic highway project. On June 29, 2006, Mitch Daniels, the former Bush administration official turned governor of Indiana, was greeted with a round of applause as he stepped into a conference room packed with reporters and state lawmakers. The last of eight wire transfers had landed in the state's account, making it official: Indiana had received $3.8 billion from a foreign consortium made up of the Spanish construction firm Cintra and the Macquarie Infrastructure Group (mig) of Australia, and in exchange the state would hand over operation of the 157-mile Indiana Toll Road for the next 75 years. The arrangement would yield hundreds of millions of dollars in tax breaks for the consortium, which also received immunity from most local and state taxes in its contract with Indiana. And, of course, the consortium would collect all the tolls, which it was allowed to raise to levels far beyond what Hoosiers had been used to. By one calculation, the Toll Road would generate more than $11 billion over the 75-year life of the contract, a nice return on mig-Cintra's $3.8 billion investment.

The deal to privatize the Toll Road had been almost a year in the making. Proponents celebrated it as a no-pain, all-gain way to off-load maintenance expenses and mobilize new highway-building funds without raising taxes. Opponents lambasted it as a major turn toward handing the nation's common property over to private firms, and at fire-sale prices to boot.

The one thing everyone agreed on was that the Indiana deal was just a prelude to a host of such efforts to come. Across the nation, there is now talk of privatizing everything from the New York Thruway to the Ohio, Pennsylvania, and New Jersey turnpikes, as well as of inviting the private sector to build and operate highways and bridges from Alabama to Alaska. More than 20 states have enacted legislation allowing public-private partnerships, or P3s, to run highways. Robert Poole, the founder of the libertarian Reason Foundation and a longtime privatization advocate, estimates that some $25 billion in public-private highway deals are in the works—a remarkable figure given that as of 1991, the total cost of the interstate highway system was estimated at $128.9 billion.

On the same day the Indiana Toll Road deal closed, another Australian toll road operator, Transurban, paid more than half a billion dollars for a 99-year lease on Virginia's Pocahontas Parkway, and the Texas Transportation Commission green-lighted a $1.3 billion bid by Cintra and construction behemoth Zachry Construction to build and operate a 40-mile toll road out of Austin. Many similar deals are now on the horizon, and mig and Cintra are often part of them. So is Goldman Sachs, the huge Wall Street firm that has played a remarkable role advising states on how to structure privatization deals—even while positioning itself to invest in the toll road market.

Goldman Sachs' role has not been lost on skeptics, who accuse the firm of playing both sides of the fence. "In essence, they're double-dipping," says Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, a truckers' group that opposes toll road privatization. "They're basically in the middle, playing one side against the other, and it's really, really lucrative."

Despite such concerns, the privatization model has the full backing of the Bush administration. Tyler Duvall, the U.S. Department of Transportation's assistant secretary for transportation policy, says dot has raised the idea with "almost every state" government and is working on sample legislation that states can use for such projects. "This is a ground battle in the United States right now," he says. "States just need to be convinced that this is basically something they should be considering."

The financial stakes are potentially huge. "You're buying the infrastructure of the economy, and it's enormously valuable," says John Schmidt, who served as associate attorney general in the Clinton administration and as counsel to the city of Chicago on the $1.8 billion privatization of the Chicago Skyway, the 7.8-mile freeway that connects the Dan Ryan Expressway in the west to the Indiana Toll Road in the east. "[Private road operators] haven't been able to get in here previously. There's been a demand, and it's been bottled up because we just haven't had privatized infrastructure in this country, so they've been buying toll roads in Chile and in France. Now, they suddenly have the opportunity to come into this country."

Please, Sir, I Want Some More.

2007-11-16T07:48:00.000-08:00

(Photo: Phillip Toledano; Styling by Marie Blomquist)

It’s like buying a gift for the guy who has everything: What can you do to impress the boss for whom you’ve already been pulling all-nighters and all-weekenders? That’s the dilemma faced by thousands of investment bankers in New York every fall, when bonus season gets under way. Starting sometime after Labor Day and ending before Christmas, everybody in the financial industry is on their best, most obsequious behavior, hoping to curry the favor of those who divvy up the spoils. And what spoils there are this year—the 2005 bonus season looks to be Wall Street’s biggest haul in five years. Last year, the New York State Comptroller’s office estimated the average bonus on Wall Street to be a clean $100,600 (or $15.9 billion split among 158,000 employees). Early estimates of the 2005 bonus pool reach as high as $19 billion.

Typically, Goldman Sachs’s announcement of its third-quarter results kicks the bonus season into high gear. Long revered for being where the serious money gets made, the firm has had a blowout year even by its own standards. Announcing a record profit in the third quarter, Goldman also noted that it had set aside $9.25 billion, almost $420,000 per employee, in compensation. When fourth-quarter results are factored in, that total could swell to an $11 billion pool, or $500,000 per employee.

Naturally, money on Wall Street is not shared equally, not even close. Most Goldman employees will receive a good deal less than half a mil, while a few will make an ungodly amount more. It’s simply a matter of how much more. Is that guy on the commodities desk who bet right every time on the price of oil worth $20 million this year—or $25 million? Maybe it’s worth taking $5 million out of the pocket of that old-school investment banker who couldn’t close that simple snack-food takeover deal. Maybe it’s time he was sent a clear signal about the weight he’s been failing to pull.

Even in the land of seven-figure incomes—in fact, especially in the land of seven-figure incomes—bonus sensitivity runs high. “Most days, I think I’m one of the most overpaid people on earth,” a former Goldman employee told me. “But other days, I feel like I’m getting shafted. Everyone at Goldman is afraid of feeling that way.” The result of extensive interviews with both current and former Goldman employees, what follows is our best guess at how, exactly, that shafting takes place. That, and the names of a few people you’ve never heard of who make more money than A-Rod.

The standard portion of net revenue (total revenue minus interest expense) earmarked for compensation at Wall Street firms stands at an astonishing 50 percent. That’s because talent is the most precious commodity on Wall Street; it’s what they sell, so it’s also what they have to pay for.

“Wall Street is just a compensation scheme,” says Andy Kessler, a Wall Street veteran and the author of several books about its culture. “They literally exist to pay out half their revenue as compensation. And that’s what gets them into trouble every so often—it’s just a game of generating revenue, because the players know they will get half of it back.” Goldman Sachs is no exception to this lucrative rule. Through the first nine months of the year, the $9.25 billion that the company set aside for salaries and bonuses was precisely 50 percent of its net revenue.

Back in the late nineties, when Goldman Sachs’s partners were considering taking the company public, the resulting turmoil in their ranks led to the departure of Jon Corzine and the ascension of Henry Paulson Jr. to the position of sole chairman and CEO of the company. One of the primary questions Paulson faced was how Goldman could motivate its relatively underpaid junior staff if it couldn’t hold out the brass ring of Wall Street’s most coveted partnership as incentive. If the company was public, the partners couldn’t just split the profits among themselves as they always had. There would be other shareholders to think of.

As it turned out, however, not much actually changed when the company did go public. The partners still control the flow of money, and they still divert a disproportionate share of it to themselves. Although it’s no longer a partnership per se, the firm breaks down its executives into senior managing directors “PMDs” (for partner managing directors) and its junior ones “EMDs” (for executive managing directors) or “MD Lite.” Starting with the 50 percent of net revenue, the PMDs slice off a big chunk—a current EMD estimated it to be 15 percent of the total. If 2005 compensation comes in at $11 billion, as one analyst estimates, that’s $1.65 billion for the firm’s 250 or so PMDs to split among themselves. Each PMD has what are known as “points” in the partnership pool, and a quarter to a third of that 15 percent (stay with me here) is split according to those proportions. With all senior managers of Goldman taking home a $600,000 salary, an equal split of 30 percent of $1.65 billion would be worth almost $2 million, pushing their pay into the neighborhood of $2.6 million. But wait, there’s more.

Goldman Sachs: How Public Is This IPO?

2007-11-15T19:56:00.000-08:00

The deal is a smash--that ensures tight control

On May 4, Wall Street could talk of little else. The long-awaited Goldman Sachs Group initial public offering raised $3.6 billion, making it the second-largest IPO ever. The deal put the market capitalization of the 130-year-old investment bank at a healthy $33 billion. On the first trade, Goldman's freshly minted 69 million shares zoomed from 53 to 76 per share, before closing the day at 70 3/8. ''Without any doubt, it was absolutely a stellar success,'' says one non-Goldman banker who was close to the deal. ''To have priced this much paper--and as a nontechnology IPO--is incredible.''

But don't be fooled. While Goldman is now public, it is still very much the same intensely private partnership that it has always been. To be sure, Goldman has a new GS stock symbol and the acquisition currency to execute its global ambitions. In fact, Goldman is set to launch a major corporate-image advertising campaign in the near future. But despite a new board of directors, Goldman will continue to be managed by its employees, for its employees--with a few public shareholders allowed to climb aboard for the ride. Says one insider: ''We're going to let you in. Now shut up and sit back and we'll let you know how much you made.''

''INNER CIRCLE.'' Goldman is hardly behaving like a public company that accepts the normal give-and-take of shareholders, competitors, and the press. It maintained unprecedented control over the placement of its stock. It even tightly controlled the ceremony at the New York Stock Exchange, where Goldman Chief Executive Henry M. Paulson Jr. rang the opening bell to celebrate the first day of trading. Instead of the usual publicity fest, no media were invited. Only Goldman cameras taped the event for a live feed to Goldman employees.

Some argue that Goldman is now even more tightly controlled. Its 17-person management committee is in charge, while the broader group of 221 partners who voted on major decisions are now less powerful. ''The only ones who will count is the inner circle,'' says the same insider. ''For the rest of the managing directors, it will be the same as if they worked for Chase.''

By far the biggest chunk of Goldman--some 48.3%--is still owned by the 221 former partners (table). The largest single owner is former CEO Jon S. Corzine, who owns 0.9%, now worth $305 million. Paulson owns a 0.8% interest. The next biggest chunk, some 21.2%, is owned by Goldman nonpartner employees. Some 17.9% is owned by retired Goldman partners and two longtime investors, Sumitomo Bank Ltd. and Hawaii's Kamehameha Activities Assn.

That leaves 12.6% of the stock for the public. But on closer inspection, few of the public shareholders were folks who happened to be lucky enough to snare a few shares. First of all, in a stunning break from decades of underwriting tradition, Goldman dissed its entire syndicate of 12 co-managers, from Morgan Stanley Dean Witter to Merrill Lynch & Co., by paying them millions to do nothing. Usually, co-managers get paid to sell a set allocation of the total stock to their customers. Instead, Goldman allocated no stock to any of its traditional competitors, placing almost every share in the hands of its own customers.

FRIENDLY INVESTORS. Of the 25% of the stock that went to retail customers, some 20% went to the clients of Goldman's elite rank of 420 brokers, who serve only the wealthiest of the wealthy, competitors estimate. The remaining 5% went to Wit Capital, of which Goldman owns 20%, and GS-Online, which Goldman just launched in April to act as an underwriter of IPOs via the Internet.

Goldman's purpose in controlling the process so tightly? Some rivals say that its main motive was to price the stock low enough to ensure that it would appreciate greatly and thus trade at a premium to its two competitors, Morgan Stanley Dean Witter and Merrill Lynch, at least initially. Sources close to Goldman say that the goal was to place stock with long-term investors and friends. Says one: ''This is our company and our stock.''

By Leah Nathans Spiro in New York

element

2007-11-14T20:20:00.000-08:00

Type	Public (NYSE: GS)
Founded	1869
Headquarters	New York, NY
Key people	Lloyd Blankfein, Chairman & CEO Gary Cohn, President & COO Jon Winkelried, President and COO John S. Weinberg, Vice Chairman David A. Viniar, CFO Edward C. Forst, CAO Gregory K. Palm, General Counsel Esta E. Stecher, General Counsel Kevin W. Kennedy, Head of Human Capital Management Alan M. Cohen, Global Head of Compliance
Industry	Finance and Insurance
Products	Investment Banking
Revenue	US $37.67 Billion (2006)
Net income	US $9.54 Billion (2006)
Employees	34,809 (2007)
Slogan	Our clients' interests always come first.
Website	www.gs.com

Business Principles

2007-11-13T08:18:00.000-08:00

1.		Our clients' interests always come first. Our experience shows that if we serve our clients well, our own success will follow.

2.		Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.

3.		Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders.

4.		We take great pride in the professional quality of our work. We have an uncompromising determination to achieve excellence in everything we undertake. Though we may be involved in a wide variety and heavy volume of activity, we would, if it came to a choice, rather be best than biggest.

5.		We stress creativity and imagination in everything we do. While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client's problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry.

6.		We make an unusual effort to identify and recruit the very best person for every job. Although our activities are measured in billions of dollars, we select our people one by one. In a service business, we know that without the best people, we cannot be the best firm.

7.		We offer our people the opportunity to move ahead more rapidly than is possible at most other places. Advancement depends on merit and we have yet to find the limits to the responsibility our best people are able to assume. For us to be successful, our men and women must reflect the diversity of the communities and cultures in which we operate. That means we must attract, retain and motivate people from many backgrounds and perspectives. Being diverse is not optional; it is what we must be.

8.		We stress teamwork in everything we do. While individual creativity is always encouraged, we have found that team effort often produces the best results. We have no room for those who put their personal interests ahead of the interests of the firm and its clients.

9.		The dedication of our people to the firm and the intense effort they give their jobs are greater than one finds in most other organizations. We think that this is an important part of our success.

10.		We consider our size an asset that we try hard to preserve. We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success.

11.		We constantly strive to anticipate the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction.

12.		We regularly receive confidential information as part of our normal client relationships. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable.

13.		Our business is highly competitive, and we aggressively seek to expand our client relationships. However, we must always be fair competitors and must never denigrate other firms.

14.		Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.

Instruments of the Money Market

2007-11-12T10:08:00.000-08:00

Commercial Paper Outstanding
Commercial paper is a short-term unsecured promissory note issued by corporations and foreign governments. For many large, creditworthy issuers, commercial paper is a low-cost alternative to bank loans. Issuers are able to efficiently raise large amounts of funds quickly and without expensive Securities and Exchange Commission (SEC) registration by selling paper, either directly or through independent dealers, to a large and varied pool of institutional buyers. Investors in commercial paper earn competitive, market-determined yields in notes whose maturity and amounts can be tailored to their specific needs.
Because of the advantages of commercial paper for both investors and issuers, commercial paper has become one of America's most important debt markets. Commercial paper outstanding grew at an annual rate of 14 percent from 1970 to 1991. Figure 1 shows commercial paper outstanding, which totaled $528 billion at the end of 1991.
Commercial Paper Outstanding Commercial Paper Outstanding

This chapter describes some of the important features of the commercial paper market. The first section reviews the characteristics of commercial paper. The second section describes the major participants in the market, including the issuers, investors, and dealers. The third section discusses the risks faced by investors in the commercial paper market along with the mechanisms that are used to control these risks. The fourth section discusses some recent innovations, including asset-backed commercial paper, the use of swaps in commercial paper financing strategies, and the international commercial paper markets.
CHARACTERISTICS OF COMMERCIAL PAPER
The Securities Act of 1933 requires that securities offered to the public be registered with the Securities and Exchange Commission. Registration requires extensive public disclosure, including issuing a prospectus on the offering, and is a time-consuming and expensive process.1 Most commercial paper is issued
FIGURE 1
Commercial Paper Outstanding
Source: Board of Governors of the Federal Reserve System.
under Section 3(a)(3) of the 1933 Act which exempts from registration requirements short-term securities as long as they have certain characteristics.2 The exemption requirements have been a factor shaping the characteristics of the commercial paper market.
One requirement for exemption is that the maturity of commercial paper must be less than 270 days. In practice, most commercial paper has a maturity of between 5 and 45 days, with 30-35 days being the average maturity. Many issuers continuously roll over their commercial paper, financing a more-or-less constant amount of their assets using commercial paper. Continuous rollover of notes does not violate the nine-month maturity limit as long as the rollover is not automatic but is at the discretion of the issuer and the dealer. Many issuers will adjust the maturity of commercial paper to suit the requirements of an investor.A second requirement for exemption is that notes must be of a type not ordinarily purchased by the general public. In practice, the denomination of commercial paper is large: minimum denominations are usually $100,000, although face amounts as low as $10,000 are available from some issuers. Because most investors are institutions, typical face amounts are in multiples of $1 million. Issuers will usually sell an investor the specific amount of commercial paper needed.
A third requirement for exemption is that proceeds from commercial paper issues be used to finance "current transactions," which include the funding of operating expenses and the funding of current assets such as receivables and inventories. Proceeds cannot be used to finance fixed assets, such as plant and equipment, on a permanent basis. The SEC has generally interpreted the current transaction requirement broadly, approving a variety of short-term uses for commercial paper proceeds. Proceeds are not traced directly from issue to use, so firms are required to show only that they have a sufficient "current transaction" capacity to justify the size of the commercial paper program (for example, a particular level of receivables or inventory).3 Firms are allowed to finance construction as long as the commercial paper financing is temporary and to be paid off shortly after completion of construction with long-term funding through a bond issue, bank loan, or internally generated cash flow.4
Like Treasury bills, commercial paper is typically a discount security: the investor purchases notes at less than face value and receives the face value at maturity. The difference between the purchase price and the face value, called the discount, is the interest received on the investment. Occasionally, investors request that paper be issued as an interest-bearing note. The investor pays the face value and, at maturity, receives the face value and accrued interest. All commercial paper interest rates are quoted on a discount basis.5
Until the 1980s, most commercial paper was issued in physical form in which the obligation of the issuer to pay the face amount at maturity is recorded by printed certificates that are issued to the investor in exchange for funds. The certificates are held, usually by a safekeeping agent hired by the investor, until presented for payment at maturity. The exchanges of funds for commercial paper first at issuance and then at redemption, called "settling" of the transaction, occur in one day. On the day the commercial paper is issued and sold, the investor receives and pays for the notes and the issuer receives the proceeds. On the day of maturity, the investor presents the notes and receives payment. Commercial banks, in their role as issuing, paying, and clearing agents, facilitate the settling of commercial paper by carrying out the exchanges between issuer, investor, and dealer required to transfer commercial paper for funds.
An increasing amount of commercial paper is being issued in book-entry form in which the physical commercial paper certificates are replaced by entries in computerized accounts. Book-entry systems will eventually completely replace the physical printing and delivery of notes. The Depository Trust Company (DTC), a clearing cooperative operated by member banks, began plans in September 1990 to convert most commercial paper transactions to book-entry form.6 By May 1992, more than 40 percent of commercial paper was issued through the DTC in book-entry form.
The advantages of a paperless system are significant. The fees and costs associated with the book-entry system will, in the long run, be significantly less than under the physical delivery system. The expense of delivering and verifying certificates and the risks of messengers failing to deliver certificates on time will be eliminated. The problem of daylight overdrafts, which arise from nonsynchronous issuing and redeeming of commercial paper, will be reduced since all transactions between an issuing agent and a paying agent will be settled with a single end-of

GOLDMAN: WE RUN WALL STREET

2007-11-11T10:48:00.000-08:00

By playing all sides of the NYSE deal, Goldman Sachs sent a powerful message. Here's how it got so far ahead.

(FORTUNE Magazine) – IT WAS AS CLEAR A STATEMENT AS could be made about who runs Wall Street these days: The New York Stock Exchange, partly owned by Goldman Sachs and headed by a former Goldman president, announced in late April that it was merging with electronic-trading network Archipelago, in which Goldman is a major shareholder. The advisor to both sides in the merger? Goldman Sachs, of course.

There's a half-admiring, half-resentful saying on the Street: "That's so Goldman." This deal fits the description to a tee--so ambitious and yet so smooth that no one else could have pulled it off. When some complained about Goldman working both sides of the deal, firm spokesman Lucas van Praag nonchalantly responded, "Life is filled with conflicts, some real, some imagined."

INSIDE THE MONEY MACHINE

2007-11-08T10:29:00.000-08:00

In a big-is-all business, Goldman vows to go it alone
lt would be a ''match made in heaven,'' declared Travelers Group Chief Executive Sanford I. Weill. The genial king of Wall Street takeovers was not talking about Salomon Inc., the firm Travelers agreed to buy in mid-September, but Goldman, Sachs & Co. Several months before the Salomon deal, Weill had met with Jon S. Corzine, Goldman's low-key chief executive, about a possible buyout of Goldman. To Weill, Goldman was the best investment bank on Wall Street, so why not start at the top? For half an hour at Weill's lower Manhattan office, Corzine heard Weill out over coffee. Then, Corzine politely told Weill that Goldman was doing just fine on its own, thank you.
Spectacular is more like it. During the week of Dec. 15, Goldman is expected to report more than $3 billion in pretax profits for the 12 months ending Nov. 30, an all-time record. In mergers and acquisitions, the Street's most prestigious business, Goldman is No.1 in the world by a significant margin, according to Securities Data Co. As an investor, Goldman has scored four home runs. It took public or sold for handsome profits pieces of its stakes in AMF Bowling, the largest bowling-alley owner; Cadillac Fairview, a Canadian real estate giant; Westin Hotels & Resorts; and Polo/Ralph Lauren. In an interview in his office at the firm's unpretentious lower Manhattan headquarters, Corzine says: ''I couldn't be happier.'' Not surprisingly, Goldman partners will see their capital accounts increase this year by an estimated $3 million to $25 million.
Much of the credit for Goldman's stellar results goes to this year's bull market. But Corzine deserves kudos as well for getting the Wall Street institution founded by Marcus Goldman in 1869 back on track. Corzine, 50, took the helm in September, 1994, when Goldman had been derailed by huge trading losses and bad management decisions. Corzine and Goldman President Henry M. Paulson Jr. quickly refocused the firm on client relationships, installed risk controls, and tightened the management structure.
But beneath Goldman's success lies a festering issue that could jeopardize both its independence and its future: the firm's vaunted but anachronistic private partnership structure, which is both a blessing and a curse. It's the source of Goldman's phenomenal success. Yet it also puts the firm at a competitive disadvantage because of its lack of access to public financing. That problem is being highlighted by the sweeping industrywide consolidation in financial services--most recently, the Dec. 8 merger of Union Bank of Switzerland and Swiss Bank Corp. The combined bank will have $26 billion in equity (table, page 90).
Goldman, by contrast, has only $6 billion in equity at yearend. Archrival Morgan Stanley, Dean Witter, Discover & Co. has $12 billion in permanent capital and can use its stock to make acquisitions. ''Goldman's unique capital structure means it is better equipped than its peers to benefit from business opportunities,'' says Les Muranyi at Moody's Investors Services. ''However, it could be a hindrance in buying or merging with a larger entity.''
Another concern is whether Goldman's capital structure is strong enough to weather a prolonged market downturn. Trading losses or legal settlements come directly out of the partners' pockets. If Merrill Lynch & Co., for example, took a big hit, its stock price would plummet, but its capital would not be affected. ''Goldman's capital structure is inappropriate. You have to have permanent equity,'' says one competitor. ''Goldman would never allow a client to have that capital structure.''
The firm got a frightening taste of its own handiwork in 1994. Some 36 partners fled, including the firm's leader, Stephen Friedman, taking a sizable chunk of Goldman's capital with them. ''When the animals are well-fed, the jungle is quiet,'' says one leading M&A adviser. But ''there will be a time when brokerages have a bad quarter. Then, they will say: 'Why should we bear all the risk? Why not let the public?'''
SPLIT SENTIMENT? The public ownership issue, which has been considered regularly since 1969, has caused a serious split within the partnership. Competitors say older partners favor going public, largely because they could cash out to a windfall. Younger partners oppose the move, since they own fewer shares in the firm and thus have less to gain. When the issue was last on the table, in January, 1996, competitors say Corzine and most of the six-man executive committee favored public ownership but were held hostage by the younger partners.
Whatever his private view, Corzine says the issue was never put to a vote. He says the overwhelming sentiment at the firm is to remain private and that the issue won't be on the agenda in 1998. Goldman is far better off private, Corzine says. It has the management flexibility that comes with not answering to public shareholders or worrying about quarterly earnings reports. It also allows Goldman to attract and retain the best people, he says. This gives the firm a lower turnover rate, institutional stability, and an aggressive, ''we're going to win,'' team-oriented culture. ''We have something unique, and it's a competitive weapon,'' says Paulson.
Corzine and Paulson insist Goldman doesn't have to get bigger simply because everyone else is. The firm doesn't need a retail broker or a credit-card company, they say. It wants to grow in asset management but believes it can build a stronger presence through internal growth, not large acquisitions. Further, Corzine believes Goldman can come up with creative financial solutions to do whatever it wants. ''I find it a bunch of malarkey that we couldn't make an acquisition,'' he says. ''We can figure out a lot of ways to do a lot of different things if we so choose.'' Adds executive committee member John A. Thain: ''Size alone is not a competitive advantage.'' Thain and John L. Thornton are expected to be Goldman's next co-chief executives.
Goldman has already strengthened its capital structure. In 1995, new restrictions were adopted that require retiring managing directors, as they're now called, to leave their capital with the firm longer. ''If we thought we couldn't withstand a cyclic downturn at least as well as our public competitors, we'd be public,'' says Paulson. ''This isn't the 11th Commandment around here: 'Thou shalt be private.'''
STAND AND DELIVER. One reason the partnership issue looms so prominently is that it is integrally connected to how Goldman makes so much money. Simply put, the firm's 190 partners, as owners, have their own money on the line. Unlike virtually all top execs of public companies, Goldman partners have 80% or more of their assets tied up in the firm. This makes for a disciplined, intense, profit-oriented organization. ''Everything all of us have worked for all of our lives is in this place,'' says Robert J. Katz, Goldman's general counsel.
Michael P. Mortara, co-head of fixed income, has a vivid recollection of his first monthly partnership meeting after he joined in 1987 from Salomon Brothers. John Weinberg, then Goldman's co-chief, called on the partner with the best results and the one with the worst. Mortara recalls the partner in risk arbitrage getting up in front of the group to explain why he had lost $20 million that month. ''Weinberg felt that the people who owned the firm deserved an explanation of how the firm was doing,'' says Mortara.
This owner mentality goes beyond the partners. It infuses the entire firm because the thousands of nonpartners are motivated by the hope of becoming partners. That, in turn, binds the firm together; everyone knows they can each make the most money if they work as a team. ''They are clearly the most closely knit tribe on Wall Street,'' says one consultant.
Right now, Goldman is expanding rapidly, especially overseas. ''Every market they enter, they dominate, if they decide to dominate,'' says one M&A adviser. Becoming a regional powerhouse in Asia is another goal. ''We did not come here to finish second,'' says Philip D. Murphy, president, Goldman Sachs Asia.
Goldman's single most profitable business in 1997 is the mergers-and-acquisitions division. Its success is a testament to the firm's internal cohesiveness. Instead of fighting about who should carve up a particular client fee, bankers and traders and analysts share information and mobilize the global resources of the organization. ''We work with each other better around the world, across borders, with research, with different divisions,'' says Goldman Managing Director Peter Weinberg, John Weinberg's nephew. ''One of the reasons we do it is that this is an economic partnership.''
Take Imperial Chemical Industries PLC, the big British chemical company. When Charles Miller Smith took over as chief executive in 1995, he wanted to redirect the company from its basic chemicals operations into higher-margin businesses that would still make use of ICI's existing sales force. Goldman and McKinsey & Co. identified Unilever PLC's specialty-chemical business as a target. In May, 1997, when Unilever decided to sell the business, ICI had only seven days to come up with the $8 billion price. That's huge for ICI, since its market capitalization is just $8.4 billion. So, together with SBC Warburg and HSBC Holdings, Goldman put its own balance sheet on the line with an $8 billion bridge loan. Goldman later led a $1.25 billion bond and $8.5 billion bank refinancing for ICI, two of Britain's largest transactions ever. Then, Goldman shored up ICI's finances by selling off two basic chemical businesses for more than $5 billion.
To do this complex deal, Goldman fielded three partners--investment banker Thornton, chemical industry banker Howard Schiller, and, on the equity trading side, Michael Evans--plus many teams to handle various aspects of the transactions. ''Goldman was at the heart of our whole thinking and delivery process,'' says Miller. ''We could not have made the changes we did without an enormous amount of assistance. They provided it.''
Collaboration is also key to Goldman's equity and fixed-income divisions, the firm's next-most-profitable businesses. Last spring, in a deal that few if any other firms could have managed, Goldman completed a $2 billion block of British Petroleum Co. stock in 12 hours, one of the largest block trades ever. After the close of business in London on May 14, Goldman got a call from advisers to the Kuwait Investment Authority asking for a bid. Goldman had pursued the deal for several years, but only had an hour to decide if it wanted to risk $2 billion to bid for the stock. An hour and a half later, Goldman bought the shares. Then, the firm mobilized hundreds of professionals to sell them. Before the London markets opened the next morning, the stock was sold to 500 institutional and individual investors--and Goldman pocketed $15 million.
Another very profitable business for Goldman is principal investing, which it does on a far bigger scale, especially overseas, than most competitors. It has invested $4 billion for clients in companies, including $1 billion of its own money. The firm has investments in 92 companies, about half in the U.S. and a quarter each in Europe and Asia. It has stakes in Executive Jet, Rollerblade, and Kinko's. Goldman earns about 30% annual returns on its own money, with an overhead of just 50 employees worldwide. Besides management fees on $3 billion, the 92 companies collectively are Goldman's single biggest client, since their transactions generate banking and underwriting fees.
One home run was Polo. Ralph Lauren had been a client since the late 1980s, when he was introduced to Robert E. Rubin, then co-head of Goldman and now Treasury Secretary. Rubin became Lauren's investment banker. In 1994, when Polo's business was soft, Goldman invested $135 million for 28% of the company. This year, Goldman underwrote Polo's public offering. All told, Goldman stands to clear $600 million.
LANDED GENTRY. Goldman has also made a lot of money by getting into the booming real estate markets early. Since the early 1990s, it has become one of the largest and most aggressive investors in real estate in the world. Of the $5.5 billion it has invested for clients in its Whitehall and other real estate funds, it has about $1 billion of its own money at stake. After a nasty but successful fight with ex-client Samuel Zell, Whitehall gained a 50% stake in Rockefeller Center. In France, Whitehall has bought more than $1 billion in property assets from French banks, making it by far the biggest buyer of French bank properties.
But becoming such a big principal investor is a risky business. First, there is a greater risk of losing money. But the bigger risk is hurting its reputation as a firm whose first business principle is: ''Our client's interests always come first.'' In several cases in the early 1990s, Goldman got burned when it made investments at odds with the interests of its clients. Today, the firm says it has a very active ''conflict management system'' and that it regularly walks away from deals that will harm a client. But some clients discern a shift away from serving customers toward serving Goldman. ''They are still the preeminent firm. But Goldman has changed from long-term greedy to short-term greedy,'' says the chief financial officer of a major U.S. company.
Being ''long-term greedy'' is Goldman's motto. It means the firm is willing to be a long-term investor. For example, in Europe, it lost money for years before it turned a profit. It started spending to build up in London in the mid-1980s when it saw a vacuum there for aggressive, U.S.-style corporate finance. Goldman and Morgan Stanley have created a new European financial order, much to the chagrin of local firms. In Germany, Goldman is the biggest and most aggressive M&A house, leading the rankings year after year. Goldman made its name there in 1996 by winning the $11 billion mandate to take Deutsche Telekom public. Getting the nod took years of cultivation. ''Our people made minimum wage,'' says limited partner David M. Silfen. ''But it got us the stamp of approval at the highest government levels.''
Goldman's ability to mobilize people for difficult projects stems from the large amount of time it spends recruiting, evaluating, and managing people. The firm has an elaborate annual review process that results in a binder the size of a small phone book that is used to critique employee performance. The firm also puts considerable effort into determining what each person should be paid. The goal is to create a deep bench of well-trained employees, ready to seamlessly replace whomever retires. Says one former Goldman employee: ''The leader isn't important. It's the organization of the ant hill.''
Perhaps. But Jon Corzine has emerged as a powerful figure. In many ways, he is an atypical chief for Goldman, which historically has been a German-Jewish firm. Corzine is a Methodist whose father was a wheat farmer and whose mother was an elementary school teacher. He was born in a farmhouse in Willy's Station, a southern Illinois hamlet of 50 people. Married to the girl he sat next to in kindergarten, Corzine went to the University of Illinois and then joined the Marine Corps reserves. After getting an MBA from the University of Chicago, he worked at two Midwestern banks and joined Goldman in 1975. He lives with his wife and three children in suburban New Jersey and recently built a house in the Hamptons.
In a culture of high-powered intensity, with Type A personalities such as predecessors Friedman and Rubin, Corzine is a man of modesty and warmth who immediately puts people at ease. A protege of Rubin, he is also known for staying calm under pressure. Corzine began as a government bond trader and rose to run the entire fixed-income unit, a key profit center. His reputation sprang from making a lot of money as a savvy trader on behalf of the firm.
A Clinton Democrat, Corzine is a hands-on leader who walks the trading floor and meets with clients. His management style is to work hard to develop a consensus and then implement the group's decision. He is scrupulously careful about treating Paulson as his partner rather than his subordinate. A natural politician, Corzine pushed to broaden the partnership by adding a category of extended managing directors who are not equity owners. ''Jon has a burning desire to be fair,'' says executive-committee member Roy Zuckerberg.
Corzine has also stressed volunteer activities ''for the soul of the firm.'' One effort was attended by almost 90% of the firm's full-time workforce. In October, some 9,000 employees turned out at locations around the world to do everything from hammering nails on low-income housing projects to teaching in New York City classrooms.
For all of his political agility, Corzine faces a formidable challenge in trying to resolve the firm's capital issues. Goldman's capital structure is so complicated that many Goldman managing directors don't understand it. And, notes one competitor, the firm is about as interested in talking to outsiders about it as it is in ''showing you their underwear.''
OUTSIDERS' CUT. Right now, the partner-managing directors own 100% of the firm and are the only ones who can vote. The partners also get the biggest share of the firm's profits: 76%. But to satisfy the need for new capital, Goldman has had to recruit outside capital, which reduces the partners' share in the firm's earnings. Attracting new capital to fund its growth has been expensive. In 1986, 1992, and 1994, Goldman raised $1.3 billion from Sumitomo Bank Ltd. and Bishops Estate in exchange for about 20% of the firm's profits or losses. Goldman raised an additional $755 million from institutional investors, mainly insurance companies, which receive a flat interest rate. The result: The firm will pay an estimated $500 million-plus this year to nonpartner equity holders.
Whatever Corzine feels privately about going public, undoubtedly Corzine's biggest fear is losing control of a proud company that plays such a large role in his and his colleagues' identities. Whatever Goldman does, it will undoubtedly attempt to maintain that control. ''I see no reason to turn over our franchise--our reason to be--to a larger organization,'' says Corzine. ''We have to be able to control the cultural character of the place.'' Which is why Corzine told Weill--and will undoubtedly tell any other suitors--they are doing just fine on their own, thank you.
By Leah Nathans Spiro in New York,

GS Main competitors

2007-11-06T20:18:00.000-08:00

Main competitors

Criticism and controversy

2007-11-05T18:52:00.000-08:00

On August 28, 2007, a former Goldman Sachs associate accused of being the mastermind behind an insider-trading scheme, one that pocketed $6.7 million, pled guilty in Federal District Court in Manhattan.

The FBI reported on July 6, 2007, that they are investigating letters sent to newspapers nationwide that say "Goldman Sachs. Hundreds will die. We are inside. You cannot stop us." The letters were post-marked in late June from Queens, New York and were handwritten in red ink on loose leaf paper, signed by "A.Q.U.S.A.".^[22]

In 2005, the firm advised both the New York Stock Exchange and Archipelago, which owns an electronic trading platform, in merger talks. Controversy surrounded the deal as John Thain, who heads the New York Stock Exchange, was a former Goldman Sachs Executive.^[23]

Also in 2005, Goldman Sachs received criticism from civic groups and New York City politicians when they received approximately $1.6 billion in taxpayer subsidies (mostly through Liberty Bonds) from New York City and state taxpayers to finance the Firm's new headquarters near the World Financial Center in Lower Manhattan in return for a commitment to keep at least 9000 employees and a major trading operation in Manhattan. It also comes with the expectation of the creation of at least 4000 new jobs by 2019.^[24]

In 1986, David Brown was convicted of passing inside information to Ivan Boesky on a takeover deal.^[25] Robert Freeman, who was a senior Partner, the Head of Risk Arbitrage, and a protégé of Robert Rubin, was also convicted of insider trading, with his own account and with the firm's.^[26]

Other Notable Alumni

2007-11-04T17:18:00.000-08:00

Joshua Bolten - current White House Chief of Staff
Erin Burnett - CNBC Host
Sacha Baron Cohen - Actor^[20]
Michael Cohrs - Head of Global Banking at Deutsche Bank
Jim Cramer - founder of TheStreet.com and Smartmoney.com, best selling author, and host of Mad Money on CNBC
Henry H. Fowler - 58th United States Secretary of the Treasury (1965-1969)
Edward Lampert- Hedge Fund Manager of ESL Investments. Brought K-Mart out of Bankruptcy in 2003.
Ocado - 3 Founders of first UK online supermarket were all former Fixed Income Traders at Goldman Sachs London
George Herbert Walker IV - member of the Bush family
Robert Zoellick - United States Trade Representative (2001-2005), Deputy Secretary of State (2005-2006), World Bank President
Mark Carney - expected to succeed David A. Dodge as the Governor of the Bank of Canada on February 1, 2008.^[21]
Henry Paulson - Current United States Treasury Secretary

GS corporate citizenship

2007-11-03T19:45:00.000-07:00

Corporate citizenship

Goldman Sachs has received favorable press coverage for conducting business and implementing internal policies related to reversing global climate change.^[17] According to the company web site, the Goldman Sachs Foundation has given $94 million in grants since 1999, with the goal of promoting youth education worldwide.^[18] The company also has been on Fortune Magazine's 100 Best Companies to Work For list since the list was launched in 1998.^[19]

GS major assets

2007-10-29T21:26:00.000-07:00

Major Assets (GS Group)

Cogentrix Energy (Energy)
American Casino & Entertainment Properties (Casinos)
Coffeyville Resources LLC (Refinery)
Myers Industries, Inc. (Plastic & Rubber)
USI Holdings Corporation (Insurance & Finance)
East Coast Power LLC (Energy)
Zilkha Renewable Energy (Energy)
Queens Moat Houses (Hotels)
Sequoia Credit Consolidation (Finance)
Shineway Group (Meat Processing)
Equity Inns, Inc. (Hotels)
KarstadtQuelle property group (Retailer)
Nursefinders Inc. (Healthcare)
Latin Force Group, LLC (Media)

Predictions

In December 2005, four years after its report on the emerging "BRIC" economies (Brazil, Russia, India, and China), Goldman Sachs named its "Next Eleven" list of countries, using macroeconomic stability, political maturity, openness of trade and investment policies and quality of education as criteria: Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.^[1

GS Capital Partner

2007-10-28T17:41:00.000-07:00

GS Capital Partners is the private equity arm of Goldman Sachs. It has invested over $17 billion in the 20 years from 1986 to 2006. One of the most prominent funds is the GS Capital Partners V fund, which comprises over $8.5 billion of equity.^[14] On April 23, 2007, Goldman closed GS Capital Partners VI with $20 billion in committed capital, $11 billion from qualified institutional and high net worth clients and $9 billion from the firm and its employees. GS Capital Partners VI is the current primary investment vehicle for Goldman Sachs to make large, privately negotiated equity investments.^[15]

^{This picture is me beside at goldman sachs building}

Asset management and securities services of goldman

2007-10-27T19:38:00.000-07:00

Asset management and securities services

Asset Management and Securities Services is a rapidly growing business for Goldman as it gains market share. It is separated into two divisions, and includes Asset Management, which provides large institutions and very wealthy individuals with investment advisory, financial planning services, and the management of mutual funds, as well as the so-called alternative investments (hedge funds, funds of funds, real estate funds, and private equity funds). The Securities Services division provides prime brokerage, financing services, and securities lending to mutual funds, hedge funds, pension funds, foundations, and High net worth individuals. This segment accounts for around 19 percent of Goldman's earnings. As of 2006, the Goldman Sachs Asset Management hedge fund is the largest in the United States with $29.5 billion under management.^[12]

In August 2007, it emerged that Goldman had to spend $2 billion to rescue its own Global Equity Opportunities hedge fund from "significant market dislocation".^[13]

Goldman Trading

2007-10-26T17:56:00.000-07:00

Trading

Trading and Principal Investments is the largest of the three core segments, and is the company's profit center. The segment is divided into three divisions and includes Fixed Income, Currency and Commodities (trading in interest rate and credit products, mortgage-backed securities and loans, currencies and commodities, structured and derivative products), Equities (trading in equities, equity-related products, equity derivatives, structured products and executing client trades in equities, options, and Futures contracts on world markets), and Principal Investments (merchant banking investments and funds). This segment consists of the revenues and profit gained from the Bank's trading activities, both on behalf of its clients (known as flow trading) and for its own account (known as proprietary trading).

Most trading done by Goldman is not speculative, but rather an attempt to profit from bid-ask spreads in the process of acting as a market maker. Around 65 percent of Goldman's revenues and profits are derived from this area. Upon its IPO, Goldman predicted that this segment would not grow as fast as its Investment Banking division and would be responsible for a shrinking proportion of earnings. The opposite has been true, however, and resulted in Lloyd Blankfein's appointment to President and Chief Operating Officer after John Thain's departure to run the NYSE and John L. Thornton's departure for an academic position in China.

Business

2007-10-25T13:07:00.000-07:00

Businesses
Goldman Sachs is divided into three core businesses.

[edit] Investment banking
Investment Banking is divided into two divisions and includes Financial Advisory (mergers and acquisitions, investitures, corporate defense activities, restructurings and spin-offs) and Underwriting (public offerings and private placements of equity, equity-related and debt instruments). Goldman Sachs is one of the leading investment banks, appearing in league tables. In mergers and acquisitions, it gained fame historically by advising clients on how to avoid hostile takeovers. Goldman Sachs, for a long time during the 1980s, was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased Goldman's reputation immensely. This segment accounts for around 15 percent of Goldman Sachs' revenues.

Corporate affairs

2007-10-23T18:14:00.000-07:00

Goldman Sachs offices at the Fraumünsterplatz in Zürich (the light-colored building on the left)

Goldman Sachs employed 26,467 people worldwide. It reported earnings of US$9.54 billion and record earnings per share of $19.69.^[8] It was reported that the average total compensation per employee in 2006 was US$622,000.^[9] However, this number represents the arithmetic mean of total compensation and is highly skewed upwards as several hundred of the top earners command the majority of the Bonus Pools, leaving the median that most employees earn well below this number.^[10] The current Chief Executive Officer is Lloyd C. Blankfein. The company ranks #1 in Annual Net Income when compared with 86 peers in the Investment Services sector.

Recently Goldman Sachs has been increasingly involved in both advising and brokering deals to privatize major highways by selling them off to foreign investors. In addition to advising Indiana on the Toll Road deal, Goldman Sachs has worked with Texas governor Rick Perry's administration on privatization projects, and according to John Schmidt, the former adviser to the Chicago mayor's office, it was a Goldman Sachs representative who first pitched the city on the idea of leasing out the Skyway. Goldman Sachs has played a major role in advising states on how to structure privatization deals—even while positioning itself to invest in the toll road market.^[11]

History

2007-10-23T06:20:00.000-07:00

Goldman Sachs was founded in 1869 by German Jewish immigrant Marcus Goldman.^[2] The company made a name for itself pioneering the use of commercial paper for entrepreneurs and was invited to join the New York Stock Exchange in 1896. It was during this time that Goldman's son-in-law Samuel Sachs joined the firm which prompted the name change to Goldman Sachs.

In the early 20th Century, Goldman was a major player in establishing the Initial Public Offering market. It managed one of the largest IPO's to date, that of Sears, Roebuck and Company in 1906. It also became one of the first companies to heavily recruit those with MBA degrees from leading Business Schools, a practice that still continues today.

In 1929, it launched the Goldman Sachs Trading Corp., a closed-end mutual fund with characteristics similar to that of a Ponzi Scheme. The fund failed as a result of the Stock Market Crash of 1929, hurting the firm's reputation for several years afterward.^[3]

In 1930, Sidney Weinberg assumed the role of Senior Partner and shifted Goldman's focus away from Trading and towards Investment Banking. It was Weinberg's actions that helped to restore some of Goldman's tarnished reputation. On the back of Weinberg, Goldman was lead advisor on the Ford Motor Company's IPO in 1956, which at the time was a major coup on Wall Street. Under Weinberg's reign the Firm also started an Investment Research division and a Municipal Bond department. It also was at this time that the firm became an early innovator in Risk Arbitrage.

Gus Levy joined the firm in the 1950s as a well known securities trader, which started a trend at Goldman where there would be two powers generally vie for supremacy, one from investment banking and one from securities trading. For most of the 1950s and 1960's, this would be Weinberg and Levy. Levy was a pioneer in block trading and the firm established this trend under his guidance. Due to Weinberg's heavy influence at the firm, it formed an Investment Banking Division in 1956 in an attempt to spread around influence and not focus it all on Weinberg.

In 1969, Levy took over as Senior Partner from Weinberg, and built Goldman's trading franchise once again. It is Levy who is credited with Goldman's famous philosophy of being "long term greedy," which implies that as long as money is made over the long term, trading losses in the short term are not to be worried about. That same year, Weinberg retired from the firm.

Another financial crisis for the firm occurred in 1970, when the Penn Central Railroad Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued by Goldman Sachs. The bankruptcy was large, and the resulting lawsuits threatened the partnership capital and life of the firm. It was this bankruptcy that resulted in credit ratings being created for every issuer of commercial paper today by several credit rating services.^[4]

During the 1970s, the firm also expanded in several ways. Under the direction of Senior Partner Stanley R. Miller, it opened its first international office in London in 1970, and created a Private Wealth division along with a Fixed Income division in 1972. It also pioneered the "White Knight" strategy in 1974 during its attempts to defend Electric Storage Battery against a hostile takeover bid from International Nickel and Goldman's rival Morgan Stanley.^[5] This action would boost the firm's reputation as an investment advisor because it pledged to no longer participate in hostile takeovers.

John Weinberg (the son of Sidney Weinberg), and John C. Whitehead assumed roles of Co-Senior Partners in 1976, once again emphasizing the co-leadership at the firm. One of their most famous initiatives was the establishment of the 14 Business Principles^[6] that are still used to this day.

In the 1980s, the firm made a major move by acquiring J. Aron & Company, a commodities trading firm which merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities. J. Aron was a major player in the coffee and gold markets, and the current CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger. In 1985 it underwrote the public offering of the Real Estate Investment Trust that owned Rockefeller Center, then the largest REIT offering in history. In accordance with the beginning of the collapse of the Soviet Union, the firm also became largely involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments.

In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds today. In the same year, the firm also underwrote the IPO of Microsoft, advised General Electric on its acquisition of RCA and joined the London and Tokyo stock exchanges. 1986 also was the year when Goldman became the first United States bank to rank in the top 10 of Mergers and Acquisitions in the United Kingdom. During the 1980s the firm became the first bank to distribute its investment research electronically and created the first public offering of original issue deep-discount bond.

Robert Rubin and Stephen Friedman assumed the Co-Senior Partnership in 1990 and pledged to focus on globalization of the firm and strengthening the Merger & Acquisition and Trading business lines. During their reign, the firm introduced paperless trading to the New York Stock exchange and lead-managed the first-ever global debt offering by a U.S. corporation. It also launched the Goldman Sachs Commodity Index (GSCI) and opened a Beijing office in 1994. It was this same year that Jon Corzine assumed leadership of the firm following the departure of Rubin and Friedman. The firm joined David Rockefeller and partners in a 50-50 join ownership of Rockefeller Center during 1994, but later sold the shares to Tishman Speyer in 2000. In 1996, Goldman was lead underwriter of the Yahoo! IPO and in 1998 it was global coordinator of the NTT DoCoMo IPO. In 1999, Henry Paulson took over as Senior Partner.

One of the largest events in the firm's history was its own IPO in 1999. The decision to go public was a tough one that the partners debated for decades. In the end, Goldman decided to offer only a small portion of the company to the public, with some 48% still held by the partnership pool.^[7] 22% of the company is held by non-partner employees, and 18% is held by retired Goldman partners and two longtime investors, Sumitomo Bank Ltd. and Hawaii's Kamehameha Activities Assn (the investing arm of Kamehameha Schools). This leaves approximately 12% of the company as being held by the public. Henry Paulson became Chairman and Chief Executive Officer of the firm. Hull Trading Company, one of the world’s premier market-making firms, was acquired by Goldman in 1999 for $531 million.

More recently, the firm has been busy both in Investment Banking and in Trading activities. It purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000. It also advised on a landmark debt offering for the Government of China and the first electronic offering for the World Bank. It merged with JBWere, the Australian investment bank and opened a full-service broker-dealer in Brazil. It expanded its investments in companies to include Burger King, McJunkin Corporation, and in January 2007, Alliance Atlantis alongside CanWest Global Communications to own sole broadcast rights to the CSI franchise. In May 2006, Henry Paulson left the firm to serve as U.S. Treasury Secretary, and Lloyd Blankfein was promoted to Chairman and Chief Executive Officer.

On July 6th, 2007, several US newspapers received anonymous threat-letters targeting Goldman Sachs and its employees.

Definition of the Goldman Sachs

2007-10-21T18:51:00.000-07:00

The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS) is one of the world's largest global investment banks. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street.^[1] Goldman Sachs has offices in leading financial centers such as New York City, London, Boston, Chicago, Los Angeles, San Francisco, Frankfurt, Zürich, Paris, São Paulo, Bangalore, Mumbai, Hong Kong, Beijing, Mexico City, Singapore, Salt Lake City, Sydney, Dubai, Milan, Melbourne, Tokyo, Taipei, Moscow, Toronto, and Monaco.

Goldman Sachs acts as a financial advisor to some of the most important companies, largest governments, and wealthiest families in the world. It is a primary dealer in the U.S. Treasury securities market. Goldman Sachs offers its clients mergers & acquisitions advisory, provides underwriting services, engages in proprietary trading, invests in private equity deals, and also manages the wealth of affluent individuals and families.

change company

2007-10-18T20:13:00.000-07:00

i change my company to Godman Sachs

stock report

2007-10-16T20:49:00.000-07:00

18.50 -8.27 -6.52%
After Hours: 120.95 +2.45 / +2.07% Vol. 32,795
Previous Close	126.77	Bid	115.15
Open	129.67	Bid Size	100
Day's High	130.48	Ask	135.00
Day's Low	117.08	Ask Size	200
Volume	8.04 Mil	52 Week High	127.97
Avg. Daily Vol. (13 wk.)	2.22 Mil	52 Week Low	12.80

DRYS Intraday Chart

5d 1m 3m 1y 3y 5y 10y

Beta	1.25
fyi Dividend & Yield	0.80 (0.63%)
Earnings/Share	5.71
Forward P/E	16.30
Market Cap.	4.21 Bil
fyi P/E	22.20
Return on Equity	42.03
Total Shares Out.	35.49 Mil

Last trade (extended hours) 07:58 PM ET Financial data in U.S. dollars

Your latest quotes: DRYS

What do dry-goods carriers, TBS, Diana Shipping, and DryShip (DRYS) have in common?

2007-10-16T08:58:00.000-07:00

BS International, an ocean transportation services company, had this to say in its S-1's risk factor section about its reliance on China (S-1 filing dated March 7, 2005):

Our business depends to a significant degree on the stability and continued growth of the Chinese economy.

....the strength of the shipping industry in the past several years is attributable, to a significant degree, to the rapid growth of the Chinese economy. Economic growth in China has caused unprecedented demand for raw materials from Latin America, including iron ore, bauxite, soybeans, timber, zinc and manganese from Brazil, tin from Bolivia and copper from Chile. These raw materials generally are transported by ocean freight. The growth of the Chinese economy has stimulated growth in other Asian economies as well. The increased demands for trans-Pacific ocean freight have resulted in increased ocean freight shipping rates, charter rates and vessel values across the globe. Any pronounced slowdown or decline in the Chinese economy could be expected to have significant adverse effects on the economies of Latin American and Asian countries, on the demand for our services and on the value of our vessels. We expect that a significant decline in the Chinese economy would have a material adverse effect on our results of operations.

Diana Shipping, owner and operator of dry bulk carriers that transport iron ore, coal, grain and other dry cargoes along worldwide shipping routes, had
this to say in its F-1's risk factor section about its reliance on China

DryShips Inc. (DRYS)

2007-10-14T21:11:00.000-07:00

DryShips Inc.

121.8399 8.6999

Today

10y

(7.69%) 10/14/2007 23:56

52wk high:

122.90

52wk low:

12.80

EPS:

5.79

PE:

21.00

Dividend:

0.80

Yield:

0.70

Market Cap:

4.32 b

Exchange:

NGS

Dry Bulk Shipping Valuations Approach “Bubble” Proportions

2007-10-13T17:52:00.001-07:00

Genko Shipping and Trading (GNK ) rose almost 20% on Thursday, July 19th after it announced late Wednesday that it had agreed to acquire nine Capesize vessels from companies within the Metrostar Management Corporation group for a total of $1.1 billion. Two of these deliveries are expected during the third quarter, while the remaining seven vessels are expected to be built and delivered to Genko between the fourth quarter of 2007 and the third quarter of 2009. This announcement added 250 million dollars to GNK’s market cap. Can creating wealth be that simple? If so, a widget making company should immediately announce that they are acquiring a few bulk carriers (even at market prices) and watch the markets swoon over their share price. And any widget maker can do so-for there are no barriers to entry in this industry. Shipyards do not have any spare capacity but one can buy ships at market prices in the very active second-hand market. The management of the ships can be outsourced to a third party (even a related third party; Dryships (DRYS) anyone?).

The share prices of most dry bulk shipping companies follow the rise and fall in the Baltic Dry Index or BDI. This is an index covering dry bulk shipping rates and is managed by the Baltic Exchange in London. Between 1985 and 2003, this index ranged between 600 and 2200. But then, in 2003 it took off and is close to 6600 today. No wonder then that the dry bulk shipping sector has been red hot. The share price of the most leveraged shipping company DRYS, is now almost 6 times its 52 week low. It trades at 4 times book value. Is the rise in the BDI and related share prices justified or is this a mega short opportunity? Let’s take a look at the facts.

The demand for commodities from China and India combined with the shortage of dry bulk ships, is leading to an enormous increase in dry bulk rates, which for cape size ships are now almost $95,000 a day. The cost to operate these ships is under $10,000 a day.
The world’s shipyards are backlogged with orders and the earliest deliveries available for new orders are in 2009.
As energy hungry China has increased consumption of its own coal at the cost of exports, Japan and Korea have had to get supplies from Australia, resulting in extreme port congestion and tying up dry bulk capacity for weeks on end, thus leading to a further increase in dry rates.
In the long term for this industry, there are no barriers to entry, no pricing power, and this sector should not trade at much above Net Asset Value.
This sector is notorious for reneging on contracts. All those fixed time charters at today’s stratospheric rates? Once rates fall, the long term contracts will sink along with the sector!

Myanmar

2007-10-11T19:44:00.000-07:00

YANGON, Myanmar - Guards at Myanmar's detention centers beat, kicked and slashed protesters rounded up during the crackdown on pro-democracy demonstrations, sometimes leaving their victims to die of their injuries, a dissident group said Thursday.

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At the United Nations, meanwhile, the Security Council said it "strongly deplores" the violent crackdown by Myanmar's military rulers and called for a "genuine dialogue" between the government and the pro-democracy opposition.

At least a dozen freed prisoners described brutal treatment at detention centers, including one who said "dozens" of detainees were killed, according to the Democratic Voice of Burma, a Norway-based short-wave radio station and Web site run by dissident journalists.

Myanmar's repressive military junta has said 10 people were killed and nearly 2,100 arrested in last month's demonstrations, with 700 later released. Diplomats and dissidents say the death toll is likely much higher and up to 6,000 people were seized.

The government has long rejected allegations of torture of political prisoners. The accounts released Thursday included fresh accusations that the military rulers brutalize prisoners as a way of crushing dissent.

"They beat everyone, including women and girls," the dissident group quoted an unidentified female detainee as saying. "I was beaten myself. Monks were targeted and they were not only beaten but also verbally abused by security officers."

"I heard people shouting and crying from the interrogation room and then I saw an army medical surgeon carrying people away," said the woman. The group said she was held at the Government Technical Institute detention center in Yangon for five days.

There was no way to independently confirm the reports attributed to freed prisoners.

Reason for drys

2007-10-10T21:09:00.000-07:00

With all the booming economies in the world looking for coal, iron ore, grain etc. there is strong demand for drybulk carriers. They are adding a 170,000 Dwt (Capesize) vessel to their fleet. I like the aggresive approach that management is taking as far as new builds rather than outchartering. This is a healthy way to utilize their strong cash position. Analysts have been raising their forecasts for 2008 and beyond. Looks like smooth sailing for this financial vessel.

Drys summary

2007-10-09T21:14:00.001-07:00

DryShips Inc. owns and operates drybulk carriers that operate worldwide. The Company owns and operate a fleet of 35 vessels. The Company’s fleet consists of five Capesize drybulk carriers, 29 Panamax drybulk carriers, and one Handymax drybulk carriers. The fleet carries a variety of drybulk commodities, including major bulks, such as coal, iron ore and grains, and minor bulks, such as bauxite, phosphate, fertilizers and steel products. In addition to its owned fleet, DryShips has also chartered-in a Panamax bulkcarrier for a period of three years commencing in December 2005. During the year ended December 31, 2006, two of its customers accounted for more than 10% of its voyage revenues: Baumarine AS (25%) and Oldendorff Carriers Gmbh (13%).

Drys stocks

2007-10-09T20:59:00.000-07:00

Sector Snap: Overseas Shippers
Monday October 8, 12:37 pm ET

Smooth Sailing for Drybulk on Record Rates, As Oil Tankers Hit Choppy Seas NEW YORK (AP) -- Shares of drybulk shippers rose Monday, as day rates for those vessels surged to all-time highs.

The Baltic Dry Index, which tracks rates on 40 routes for vessels carrying cargoes such as coal, iron ore and grain, closed at 9565, up 130 points. The spot day rate for a medium-sized vessel now tops $78,000.

At the same time, Dahlman Rose & Co. analyst Omar Notka said rates in the oil tanker market continue to slip as oil production slows. Drybulk rates are supported by strong demand in Asia, as well as congested ports and a finite number of available vessels.

Also on Monday, Cantor Fitzgerald analyst Natasha Boyden lowered her full-year estimate on General Maritime Corp., which owns and operates crude oil tankers, because of lower-than-expected spot market rates in the third quarter.

Boyden now expects the company to earn $1.63 per share for 2007, compared with a previous estimate of $1.78. She maintained her $2.13 per share expectation for 2008.

The analyst raised her estimates on Greek petroleum shipper Top Tankers Inc. for 2007 and 2008, citing the company's recent acquisition of three Panamax dry bulk carriers.

Monday it took delivery of a new container ship, jumped $1.09, or 6.9 percent, to $16.82.

As Drys

2007-10-05T21:04:00.000-07:00

DryShips Inc. (DRYS ) is a global provider of marine transportation services, specializing in the transportation of major and minor bulks cargoes. The company's vessels are able to trade worldwide in a multitude of trade routes carrying a wide range of cargoes for a number of industries but predominantly for commodities, including coal and iron ore for energy and steel production as well as grain for feedstocks.
I think Drys can go to $330 within 1 month. I'm extremely bullish. No price is high enough. I think Drys goes to $2,000 per share within 1 year. After that, I think Drys goes to $100,000 per share within 5 years. I see no reason to work anymore. The whole country could retire just by buying Drys.

DrysShips website

2007-10-05T14:27:00.000-07:00

Overview

DryShips Inc. is a global shipping transportation company specialising in the transportation of drybulk cargoes.

Our executive offices are located in Amaroussion, Greece and we have been listed on the New York Nasdaq Exchange since February 2005 and trade under the symbol "DRYS".

Our vessels are able to trade worldwide in a multitude of trade routes carrying a wide range of cargoes for a number of industries.

Our capesize and Panamax drybulk carriers carry predominantly coal and iron ore for energy and steel production as well as grain for feedstocks.

Our handymax and Handysize drybulk carriers carry iron and steel products, fertilizers, minerals, forest products, ores, bauxite, alumina, cement and other construction materials. These raw materials and products are used as production inputs in a number of industries. We transport these various cargoes on several geographical routes.

Our fleet carrying capacity totals over 2.6 million deadweight tons.

We are focused on maximising shareholder value by maximising returns on our investments while at the same time ensuring our vessels adhere to the highest safety and environmental standards.

Please browse our site to find out more about our activities.

Legal Information about Drys websit
The information contained in this Website has been prepared solely for the purpose of providing information about DryShips Inc. in general. By accessing this website you agree that DryShips Inc. will not be liable for any direct, indirect or consequential loss arising from the use of the information and material contained in this website or from your access of other material on the Internet via web links from this site. DryShips Inc. does not guarantee the accuracy of any web links and assumes no responsibility for the information available through them.

No part of the DryShips Inc. website materials may be copied, reproduced, used or performed in any form (graphic, electronic or mechanical, including photocopying, recording, taping or information storage and retrieval systems) for any purpose without the express written permission of their respective owners.

week 5 website

2007-10-05T14:25:00.000-07:00

Welcome to DryShips Inc.

DryShips Inc. is a global shipping transportation company specialising in the transportation of drybulk cargoes.

Our executive offices are located in Amaroussion, Greece and we have been listed in New York on the Nasdaq Exchange since February 2005 and trade under the symbol "DRYS"

Our fleet carrying capacity totals over 2.3 million deadweight tons.

We are focused on maximising shareholder value by maximising returns on our investments while at the same time ensuring our vessels adhere to the highest safety and environmental standards.

summary

2007-10-01T20:23:00.000-07:00

DryShips, Inc. engages in the ownership and operation of drybulk carriers worldwide. The company's fleet carries various drybulk commodities, including coal, iron ore, and grains, bauxite, phosphate, fertilizers, and steel products. As of August 6, 2007, it owned and operated a fleet of 35 drybulk carriers comprising 5 Capesize, 27 Panamax, 1 Handymax, and 2 newbuilding Panamax vessels with a combined deadweight tonnage of approximately 3 million. The company was founded in 2004 and is headquartered in Athens, Greece.

2007-10-01T20:21:00.000-07:00

NEW YORK (AP) -- Shares of drybulk shippers soared to new highs Monday after a Cantor Fitzgerald analyst raised price targets and earnings estimates on key players, saying vessel rates have surpassed already-bullish expectations.
The Baltic Dry Index, which is managed by the Baltic Exchange in London, jumped 63 points Monday to close at an all-time high of 9537. The index measures drybulk shipping rates on 40 shipping routes on a time charter and voyage basis.

Analyst Natasha Boyden raised her 2007 earnings-per-share estimate on DryShips Inc. to $9.48 from $7.75, and her 2008 expectation to $12.48 from $10.81.

Boyden lifted her price target to $108 from $94.

For Excel Maritime Carriers Ltd., the analyst raised her price target to $68 from $52, saying that the current rate environment is so strong that even the company's older ships, which normally fetch lower rates than newer vessels, should be able to benefit.

DrysShips

2007-10-01T20:19:00.000-07:00

DryShips (DRYS), according to its website, is "a global shipping transportation company specializing in the transportation of dry bulk cargoes. Its vessels are able to trade worldwide in a multitude of trade routes carrying a wide range of cargoes for a number of industries". The Street has liked the story in a rather large way this year. DRYS is up over 400% since starting the year trading around $18.00. After a move of that magnitude it would be logical to think that things at DRYS are a tad rich on a valuation basis. But upon further review, valuations aren't all that frothy.

company

2007-09-12T18:31:00.000-07:00

DRYS from $8 grow to $72

first post

2007-09-11T16:33:00.000-07:00

wljladmsamda,

summer

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Cold Call

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Baron Cohen comes out of character to defend Borat

Hedge Funds Ditch Japan for Asia, Goldman Sachs Says (Update2)

The Goldman Sachs Foundation

The Street Turns Green

100 Best Companies to Work For 2007

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Goldman Sachs Closes GS Capital Partners VI

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Goldman pumps in $2bn to bail out hedge fund

Goldman Sachs is using $2 billion of its own money to fund a $3 billion bailout of a fund that acts on computer analysis

Background

The party's over

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DRYS Intraday Chart

What do dry-goods carriers, TBS, Diana Shipping, and DryShip (DRYS) have in common?

DryShips Inc. (DRYS)

Dry Bulk Shipping Valuations Approach “Bubble” Proportions

Myanmar

Reason for drys

Drys summary

Drys stocks

As Drys

DrysShips website

week 5 website

summary

DrysShips

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