Sources revealed that from General Motors Co.'s initial public offering, a combined $120 million will be earned by Wall Street banks led by JPMorgan Chase & Co. and Morgan Stanley. But these companies could have made four times more if not for Goldman Sachs Group Inc.
Sources said that in Goldman Sachs' proposal to the US Treasury in May, it had said that it will accept a 0.75 percent fee. This is far lower than the 3 percent that other banks typically charge on the largest IPOs. It is also lower than the 2 percent rate offered by Bank of America Corp. and other banks that presented to Treasury.
Goldman Sachs, which had recently been named in a fraud lawsuit by federal regulators and has ties to Ford Motor Co., wasn't given a top role in the IPO. The sources said that banks became upset when the government imposed the fee pitched by Goldman Sachs President Gary Cohn and his five-person team on all underwriters.
Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston, said that he is not at all surprised that the other banks are "furious at Goldman." He said that they believe that it provided the government with a "real lever" to force down fees on the underwriters. However, he believes that the deal "still has a lot of marquee value."
In May this year, it was reported that Lazard Ltd. was appointed by the US Treasury Department to give advice on an initial public offering of General Motors Co.
In June 2009, GM and certain subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The court then approved the sale of substantially all of General Motors Corp’s assets to a new and independent company -- NGMCO Inc. When the sale was completed in July 2009, NGMCO changed its name to General Motors Company.
Since GM received a $50 billion government bailout, the US Treasury got nearly 61 percent ownership of the company while Canada and the province of Ontario own close to 12 percent. The old GM – nwow named Motors Liquidation Company -- owned 10 percent and the UAW retiree medical benefit trust VEBA (Voluntary Employees' Beneficiary Association) received a stake of 17.5 percent.
Lazard had actually worked with the UAW as the union negotiated its role in GM's restructuring. Lazard's senior banker, Felix Rohatyn, had been GM CEO Ed Whitacre's adviser in his years at AT&T Corp. For the first 12 months or until the IPO is completed, Lazard will get $500,000 per month. The contract is for 18 months but it can be extended.