Goldman Sachs is the smart money in the room, and it has turned down billions of euros worth of fees from underwriting offerings from periphery banks just in the past few months.
The risk in this part of the world is just too great for Goldman, and this decision illustrates just how concerned it is.
JPM and MS wound up underwriting the Popular deal at .401 euro cents for a gross offering of €2.5bn. The banks will be paid a minimum of €52mm with a bonus of €21mm to be paid at Popular’s discretion.
Goldman would have underwrote the deal but only at better terms than those. The firm passed on at least €52mm, because it did not believe this amount would cover its risk on €2.1bn worth of stock that it would only carry in inventory for a few hours.
Goldman believed that no one would do the deal with those terms and decided not to negotiate with Popular confident that it would get the business. When it lost the deal, it planted this story to spin the scenario from “Goldman loses deal” to “Goldman passes on deal.” This does not change the fact that the firm has dramatically altered its risk profile of the region.