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Goldman (GS) Signs Undertaking With ASIC Over Block Trade

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Goldman Sachs (GS - Free Report) will be reviewing equity capital market transactions at its Australian branch after being accused of misleading potential investors in a block trade transaction that the unit had undertaken in relation to shares of Healthscope Limited in November 2015.

The Australian Securities and Investments Commission (“ASIC”) has put forth concerns over "certain representations" that Goldman Sachs Australia made to investors about minimum fixed demand.

Goldman Sachs Australia (GS Australia) has been asked to pay $500,000 into a community fund and sign an enforceable undertaking that will require it to tighten controls of its bookbuild messaging of certain transactions.

Bookbuild is a process of generating, recording and capturing demand from potential investors for a capital raising transaction.

“Certain Representations”

GS Australia was appointed as a lead manager and underwriter of a block trade worth A$853 million. Its representatives were noted to have made comments such as “GS Australia had five cornerstone investors and/or that A$500 million of sale shares were covered.” ASIC believes that this led to a misperception of the minimum fixed demand for the sale shares.

Also, though the level of demand that was expected to materialize did not occur, the representatives continued to pass above mentioned statements without taking adequate steps to avoid potential misperception.


GS Australia has been able to dodge legal actions by promising to conduct an internal review of policies, procedures, training and supervision of employees engaged in equity capital market transactions led by GS Australia, which involve a bookbuild or underwriting process. The company will also implement changes to address any deficiencies identified.

The bank has already undergone initial changes to its controls and processes. Per ASIC, these changes include requiring legal or compliance approval of all bookbuild messages being provided to potential investors in equity capital market transactions and having compliance staff attend sales calls at the launch of deals to have an oversight of messaging to investors.

Our Take

Goldman Sachs’ well-diversified business, along with its solid investment banking operations, bolster its financial position. Further, the company’s focus on new growth opportunities through several strategic investments, including the digital consumer lending platform, will likely support its overall business growth.

However, Goldman’s involvement in a number of investigations and lawsuits from investors and regulators have resulted in the stock losing 11.6% year to date compared with the industry’s decline of 3.7%.

Currently, Goldman Sachs carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

M&T Bank Corporation (MTB - Free Report) has witnessed slight upward estimate revision for current-year earnings in the last 60 days. Also, the company’s shares have risen 5.4% in the past year. It carries a Zacks Rank #2, at present.

Cullen/Frost Bankers’ (CFR - Free Report) current-year earnings estimates have been revised nearly 1% upward over the last 60 days. Over the past six months, the company’s share price has jumped 16.9%. It currently carries a Zacks Rank of 2.

T. Rowe Price Group (TROW - Free Report) has witnessed slight upward estimate revision for current-year earnings over the last 60 days. Additionally, the stock has jumped 12%, in six months’ time. It currently carries a Zacks Rank #2.

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