Banking & Capital Markets

What Did Goldman Know — and When?

Report says SEC may hit bank with insider information charge; flap involves Treasury's scrapping of long bond. Also: Jet Blue IPO to land this week...
Craig SchneiderApril 1, 2002

The SEC may charge Goldman Sachs with securities fraud relating to information the firm received about the U.S. Treasury’s plan to stop selling 30-year bonds. According to a Reuters report on Friday (citing an unnamed source familiar with the situation), the Commission alleges that Goldman received information about the Treasury’s long-bond decision before it was made public.

The unconfirmed report says the SEC will notify the investment bank that it plans to recommend filing civil charges against Goldman about the Treasury leak. The leak reportedly happened on or around October 31. As you recall, that’s when the U.S. Treasury made an unexpected decision to suspend the once-revered 30-year bond. Bond prices soared after the news hit the market ahead of Treasury’s planned announcement — a snafu caused in part because of a Web site glitch, which previewed the information 17 minutes early.

But an internal Treasury review apparently found a member of its debt advisory panel and a principal at a New Jersey analysis firm had heard about the news before the inadvertent Web release, Reuters notes. Moreover, Washington-based consultant Pete Davis, present at “an under-wraps press conference,” reportedly conceded afterward that he had called clients before the end of the embargo to give them details of the planned bond scrapping by the Treasury.

Market Drop Depletes Pension Funds

The downturn in the capital markets hurt the financial performance of U.S. pension funds in 2001, according to recent analysis of defined benefit pension plans conducted by consultancy Towers Perrin. Researchers at Towers Perrin say the funded levels at the surveyed plans dropped 13 percent for the year. That’s slightly worse than in 2000, when surveyed plans showed an 11 percent decline in funding.

Globally, U.S. pension fund data fell within the average 10 to 15 percent drop in 2001, notes the report. Towers Perrin based its analysis on a benchmark plan in each country, with liabilities estimated under accepted international accounting standards.

Australia was the only market included in the update to achieve a positive benchmark local equity return, rising 10 percent for 2001. Factoring in the combined effects of asset and liability movements, the funded status of the benchmark plan for Australia declined just 2 percent last year, still better than the double-digit declines for the other countries (Canada, Euro-Zone, Japan, U.K., and the U.S.).

“Companies and their employees need to keep these results in perspective,” notes Massimo Borghello, a principal in Towers Perrin’s Global Resources Group. “In some countries, relief is available from exceptional years of performance during the boom in capital markets in the late 1990s that enabled many organizations to build up pension surpluses.”

Borghello is also bullish on what lies ahead. “The poor asset returns will also have impacts on local funding requirements,” he adds. “For plans around the world that were well-enough funded to enjoy reduced contributions or contribution holidays, this may mean a return to the full level of contributions, which has not been seen in a number of years.”

Friendly Skies for Jet Blue?

Airline operator Jet Blue is expected to go public this week in a $126.5 million offering. No official pricing date has been set for the low-fare specialist. The company earned $38.5 million in net income in 2001 on revenue of $320.4 million. The carrier is expected to price 5.5 million shares at around $22 to $24 a share. Morgan Stanley and Merrill Lynch are the lead managers. Managers at the Kew Gardens, N.Y.-based airline intends to use the net proceeds for working capital and capital expenditures.

Vertical Health Solutions is also expected to make its market debut this week in a $10-million offering. The provider of customized private label supplements and health products to veterinarians will price approximately 1.25 million shares between $7 and $9 a share. Vertical Health reported a net loss of around $193,000 in 2000. Kashner Davidson Securities Corp. is the lead manager. Vertical’s management intends to use the net proceeds for increased sales and marketing efforts, business expansion, debt retirement and general working capital purposes.

Key Indicators This Week

Today, the Institute for Supply Management (ISM) will release its purchasing manager’s index. That index provides insight into U.S. manufacturing activity over the last month. The index is expected to remain at 54.7 in March, unchanged from February levels. The ISM follows with non-manufacturing data on Wednesday.

On Tuesday, the big three automakers report on car and truck sales for the month. Those numbers often are a good indicator of where consumer spending is headed.

And on Friday: The Labor Department issues its monthly jobs report, which is expected to show that the unemployment rate rose to 5.6 percent in March from 5.5 percent in February. The jobs data could have a real impact on the capital markets. If unemployment remains steady, and other economic gauges continue show the recovery is on, the U.S. Federal Reserve may end up raising the Federal funds rate later in the year.

4 Powerful Communication Strategies for Your Next Board Meeting