Board-Ansicht
Mix-Ansicht- Guten Morgen, Fruehstueckslektuere/GE-Autsch - XERXES, 16.04.2002, 08:18
Guten Morgen, Fruehstueckslektuere/GE-Autsch
04/15 00:31
Goldman Turns Down Request by General Electric for More Credit
By Mark Lake
New York, April 15 (Bloomberg) -- General Electric Co., the world's largest company, recently asked 11 of the biggest banks and securities firms for as much as $1 billion whenever it needs the money. Only Goldman Sachs Group Inc. said: ``No thanks.''
For Goldman, most often cited as the top investment bank, turning down the request was based on a simple mathematical equation: General Electric doesn't give it enough investment banking business to compensate for the puny fee on any loan that may be made, said people familiar with the matter.
The rebuff also shows that Goldman Chief Executive Officer Henry Paulson is willing to take a risk that his peers at rivals Merrill Lynch & Co. and Morgan Stanley Dean Witter & Co. are no longer prepared to: lose millions of dollars in fees from advising General Electric on its acquisitions and from underwriting its securities.
``If you say `No' to GE, you get banished to the underworld,'' said Glenn Reynolds, chief executive officer of CreditSights Inc., an independent research firm and the former head of global corporate bond research at Deutsche Bank AG.
Calls to Paulson were returned by a spokesman for the firm, Lucas Van Praag, who said Paulson would have no comment. General Electric spokesman David Frail declined to comment.
General Electric's finance unit is seeking more than $15 billion from a group led by J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp. to bolster its available credit following criticism from rating companies and investors that it was too dependent on short-term debt.
Moody's Investors Service, the No. 2 credit rating company, told General Electric three weeks ago that it needed more credit to back $100 billion in commercial paper, the obligations of 90 days or less that companies use to fund day-to-day operations.
While some companies have credit lines equivalent to their commercial paper, GE Capital had loan commitments backing 33 percent. General Electric, run by Jeffrey Immelt, has pledged to increase that to 50 percent by July. GE Capital is the biggest non- bank finance company and the largest commercial paper issuer.
Holdout
Goldman has rejected requests before. Two years ago, along with Morgan Stanley, Goldman turned down Ford Motor Co.'s $250 million loan solicitation. Last year, Goldman refused to extend a $450 million credit to Vodafone Group Plc, Europe's biggest wireless company. Vodafone retaliated by giving Goldman less business.
The securities firm has been adamant about not tying up capital on credit commitments because it can make more money arranging stock sales or advising companies on mergers and acquisitions. Wall Street firms can only charge fees of about 0.1 percent for the promise to make loans; initial public stock offerings command fees of as much as 7 percent.
``Goldman has made a conscious decision not to'' make low- margin loans, said William Batcheller, who owns shares of both General Electric and Goldman in the $800 million Armada Equity Growth Fund he manages. ``In situations like this, the fees are probably not going to be big.''
Goldman is relying on its clout as the No. 1 equity underwriter and merger adviser last year to win business without offering loans. To blunt competition from lenders willing to use their capital, Goldman lobbied the Financial Accounting Standards Board to require commercial banks to value loans and credit lines on their books at market prices -- the way securities firms do -- rather than at face value.
Losing Underwriting
The threat posed by commercial banks to Goldman is real. In junk-bond underwriting, where fees can run as high as 3 percent, banks now dominate. Bank of America Corp., J.P. Morgan and Deutsche Bank are all in the top five arrangers of junk bonds, while Goldman, Morgan Stanley and Merrill Lynch languish at No. 8, 9 and 10, respectively. Last year, Goldman ranked No. 3.
``It's the continuation of a trend,'' said Williams Hodges, head of debt capital markets at Bank of America. ``The top five guys are the ones with positive momentum.''
The competition from banks has prompted many securities firms to lend more. At Lehman Brothers Holdings Inc., lines of credit extended to investment-grade companies rose 34 percent to $5.6 billion as of Nov. 30, compared with a year earlier.
Both Morgan Stanley and Merrill Lynch have expanded their commercial banking operations to raise more capital so they can make loans. Morgan Stanley, the most profitable investment bank, provided its Utah-based banking unit with $2 billion in capital last year to boost lending capacity.
Goldman makes exceptions for its best customers. For example, it committed $2 billion of a $25 billion backup credit line for AT&T Corp., which has picked the securities firm for most of its advisory work in the past decade.
With Fairfield, Connecticut-based General Electric, Goldman has typically been on the outside looking in. Over the past two years, Goldman has underwritten four bonds for GE. Lehman has managed 24 and Salomon Smith Barney Inc. 44.
Goldman did advise GE on its $2.1 billion purchase of Franchise Finance Corp. of America in 2001. That was the only transaction of more than $1 billion Goldman has done for GE since 1997, according to data compiled by Bloomberg.
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