Goldman Sachs leads financials wider after SEC suit; primary quiet

By Andrea Heisinger and Cristal Cody

New York, April 16 - Goldman Sachs & Co. bonds were wider Friday after the Securities and Exchange Commission charged Goldman with failure to disclose key details to investors.

The developments also brought to a halt the recent rally in the financial sector, dragging spreads wider.

New York-based Goldman denied the allegations.

New issues were absent from the high-grade market on Friday due to limited interest from issuers and headlines in the banking sector.

If there were any new deals on tap, they were likely scrapped early on in the day as news came of the civil lawsuit against Goldman Sachs & Co.

Earnings announcements came from Bank of America Corp. and General Electric.

There "wasn't much happening" in the primary market for the day as new issues were non-existent.

Sources said they were looking ahead at the coming week, which should be about the same as the past one in terms of the number of deals priced.

"Goldman paper's anywhere from 15 to 30 bps wider," a trader said Friday. "Citi, Bank of America, Wachovia bank paper are all 10 to 20 wider."

For example, Goldman's 6.15% notes due 2018 moved out to 148 bps from 120 bps on Thursday, according to a source.

In addition, Goldman's 7.5% notes due 2019 widened to 166 bps on Friday from 137 bps.

Elsewhere, Charlotte, N.C.-based Bank of America's 7.625% notes due 2019 were seen trading weaker at 170 bps on Friday, compared to 155 bps on Thursday, according to a source.

The response to the Goldman charges mainly is a "fear of the unknown," one source said.

But the charges have "everything" to do with the weakness in the financial sector.

"That and they're looking for some sort of reason to lighten up," the source said.

"Financial markets in general are just a little weaker. Off the run is still 5, 10 weaker. Equities are lower - it all put pressure on the market," the source said. "It had been going up and up. This gave it a good reason to come off a little of it."

Goldman, earnings weigh on primary

Three bold-faced names were the center of attention in the high-grade primary for the day, with little else going on.

Goldman Sachs was in the news after being accused of securities fraud by the Securities and Exchange Commission. The suit was for betting against a mortgage investment one of Goldman's vice presidents created.

"It was all Goldman today," a source said late in the day of what everyone was talking about.

The news had little to no impact on the high-grade market because, as one source said, "I don't think anyone was going to issue anyway."

Earnings announcements continued, with Bank of America and GE each posting profits, They followed in the footsteps of JPMorgan Chase & Co., which boosted bank bonds on Wednesday and Thursday after posting strong first quarter income.

Bank of America had income of $3.2 billion for the quarter, and GE had net income of $1.9 billion.

Coming week seen light

The coming week is expected to be light on issuance, according to market sources.

One syndicate source said his desk didn't handle many deals during the past week, and that the coming week should be "about like this one. It should be light again."

He added that he wasn't sure if a majority of sales would come in the first half of the week, as they did this week, or if they would come in middle of the week.

"I'm not sure when they [new bonds] will come out."

A source at a second, larger syndicate desk said she hadn't seen the upcoming deals calendar.

"I'm hoping it's busy," she said, adding that new issues looked to be "steady."

CDS widen on Goldman charges

A trader who follows the credit-default swaps market said that the cost of protecting holders of bonds issued by banks or investment brokerage houses rose on Friday, in response to the charges against Goldman Sachs.

The trader saw the cost of CDS contracts protecting Goldman bondholders against a possible event of default widen by 15 basis points on the day, to 106-116 bps.

He meantime saw CDS costs for Morgan Stanley 5 bps wider, Bank of America 2 bps wider, Citigroup 6 bps wider and JP Morgan 1 bp wider.

Another market source saw Goldman's CDS cost widen out to as much as 136 bps during the session, well up from recent levels below 100 bps.

-Paul Deckelman contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.