Careful What You E-Mail!
Liz Moyer, 10.26.05, 6:00 AM ET
NEW YORK - Wall Street doesn't seem to have learned that you don't put anything in an e-mail you don't want to see in the headline of a news story. This time it's Goldman Sachs.
Goldman (nyse: GS - news - people ) investment bankers were placing bets among themselves on the direction of Archipelago's stock the day before the electronic exchange announced its deal to merge with the New York Stock Exchange.
These same junior Goldman bankers who pulled all-nighters doing the grunt work on the Archipelago-NYSE deal were also maneuvering the firm for a boost in the rankings of deal advisers related to the transaction, and gossiping over possible conflicts in advising both buyer and seller.
Officially, and publicly, Goldman was a matchmaker for the two sides, with other investment banks doing the heavy lifting. Of course, most everyone else on Wall Street has accused Goldman of being too conflicted in the deal. Now it seems some of its own employees had the same initial instincts. Goldman has served as adviser to both seller and buyer,
is one of the largest investors in Chicago-based Archipelago, owns more than a dozen exchange seats and has close ties to NYSE's chief executive officer, John Thain, who is a former Goldman president.
The text of the internal Goldman e-mails was disclosed Tuesday by attorneys for disgruntled NYSE seat holders who are suing to block the deal or at least get the NYSE board to consider all its options. The seat holders have argued they are not getting enough money in the deal.
In one e-mail exchange, a Goldman banker invites colleagues to join in a betting pool on how much Archipelago's stock would jump the day the deal got announced. Losers were supposed to pay for drinks and dinner.
Archipelago's stock closed at $16.90 the day of that e-mail, dated April 19, from Christoph Hansmeyer (identified as being part of Goldman's financial institutions group) to his colleague David Schwimmer, who was the point-person banker on the deal, code-named Army-Navy.
Archipelago's stock closed at $18.76 the next day--when the deal was announced after the closing bell, and it jumped to $29.96 the next day. Archipelago shares have continued to climb and are now trading above $40.
While it's reasonable to expect a stock to move up after a deal is announced, it is supposed to be the seller's stock (in this case the NYSE), and not the buyer's, that makes the move.
For Jay Eisenhofer, the attorney representing seat holder William Higgins and others who are suing NYSE, the e-mail train indicates "they knew a significant portion of the value of the NYSE had been transferred to Archipelago shareholders, which is an incredible thing coming from the bankers for the NYSE."
Peter Rose, a spokesman for Goldman, says the e-mails "are idle chatter among junior people. The transaction was thoroughly reviewed at the highest levels of the firm."
But some of those bankers are not so junior. Hansmeyer is a vice president in the investment banking group. Schwimmer was recently promoted to managing director of Goldman.
Eisenhofer says the seat holders are prepared to go to trial in mid-November and will file for an injunction to block the deal soon after NYSE and Archipelago file their final S-4, a Securities and Exchange Commission form for shareholders.
Other e-mails outline the lengths to which Goldman's minions went to ensure that the firm got equal credit as an adviser to buyer and seller in the all-important rankings of investment banking firms tracked by Thomson Financial.
"We really think we should get credit for both sides since we really advised both sites [sic] and have signed engagement letters," Hansmeyer writes in an e-mail dated April 22. "This is very unusual, but we think GS should get full credit for what we actually did."
They won that battle. Thomson Financial, the data company that keeps a well-watched list of top deal advisers, assigned lead-banker status to Goldman as adviser to Archipelago and to NYSE. Goldman is named alphabetically in each category, along with Greenhill & Co. (for Archipelago) and Lazard (for NYSE).
Richard Peterson, head of research for Thomson Financial, said in an e-mail that a dual designation as adviser to buyer and seller is "rare."
The tone of the Goldman e-mails suggests even low-level bankers recognized a possible conflict in Goldman's role as adviser and investor in Archipelago and adviser and alumni association for NYSE's management. Goldman's official position has been that everyone is a grown-up and the conflicts, if they exist, are manageable and not a problem.
But an April 21 exchange between two junior bankers, Elena McKee and Brian Musto, put the issue in more concrete terms. "That's freakin' amazing," McKee writes when she is told by Musto that the firm advised both sides. "Yep," Musto responds.
"How did that get through conflicts??" McKee wrote.
The attorney who disclosed Tuesday's e-mails pledges even more to come. http://www.forbes.com/2005/10/25/goldman-emails-archipelago-cx_lm_1026goldman.html?partner=daily_new...