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Goldman’s “True Blood” moment

July 13, 2009

matthewgoldstein-Matthew Goldstein is a Reuters columnist. The opinions expressed are his own.-

Goldman Sachs CEO Lloyd Blankfein has an image problem on his hands.

The most ardent critics of his firm are likening it to a blood-sucking vampire, while others simply see the Wall Street investment bank as a greedy and ruthless financial titan. But there is a way for Blankfein to start turning public opinion around, and that involves a quick buyout of ailing mid-market lender CIT Group, which provides financing to some retailers, manufacturers and aviation operators.

While a collapse of New York-based CIT would not pose the kind of systemic risk that last September’s bankruptcy of Lehman Brothers did, the lender’s sudden disappearance from the market would make it even more difficult for some small- and mid-sized American companies to finance their operations.

A CIT bankruptcy would also prolong the worst recession since the Great Depression and rekindle investor jitters about the overall strength of the financial sector.

But Goldman could easily avert a crisis in mid-America by swooping in and buying the lender, which has some $60 billion in debt. It wouldn’t take much for Goldman, which last summer provided $3 billion in secured financing to CIT, to get a deal done.

CIT’s market value is $451 million and falling fast. In a bankruptcy, the shares would be all but worthless. So the company, which must deal with $10 billion in maturing debt next year, could be had for considerable discount.

To make CIT an easier pill to swallow, it shouldn’t be too hard for Blankfein to call up his many friends in the halls of government to obtain some financial backing. If Goldman were to play the white knight, the Federal Reserve could provide some guarantees on the worst of CIT’s assets — just as the Fed did for JPMorgan Chase  when it rescued Bear Stearns.

And with Goldman in the driver’s seat, CIT would instantly become eligible to issue debt backed by the Federal Deposit Insurance Corp.

In the short term, a CIT acquisition might cause Goldman to absorb some unpleasant write-downs on loans to troubled companies. But over the long haul Goldman would emerge a winner by getting to sink its teeth into a broad swath of American companies. In the end, Goldman would emerge not only as the premier adviser to titans of free enterprise, but as a leading counselor to small- and mid-sized companies, too.

Oh, and Lloyd, there’s a way for you to get maximum publicity for this deal. Show up at Goldman’s second-quarter earnings conference call on Tuesday. Take the microphone away from CFO David Viniar and announce the deal as analysts, investors and reporters listen in. Just imagine the drama.

On the day that Goldman reports blow-up earnings — something that could stoke populist outrage — you get to rewrite the headlines. The much-maligned vampire of Wall Street gets to show that it has a heart, too.

Update:

Read what my colleague Agnes Crane has to say on CIT too.

Comments

Hi: I noticed your comments about the C.I.T. situation today. The modus operandi of Goldman Sachs is to short the over-valued and high risk paper (CIT) and go long the fair to under valued credit and equity. They put these trades on in such bulk that there is no need to assume the risk of operating a failing credit lender like C.I.T. Why bother!! They are the best, and with a balance sheet now backed the full faith and credit of the Fed et al..the upside to their trade desk is beyond enormous. It doesn’t get any better than this and Goldman would be foolish to pick up unwanted risk that C.I.T embodies…

Posted by msobol | Report as abusive
 

For years ,we all heard about program trading , anonymous fund A , B, C., etc .
Goldman Sacks and others are taking full advantage of the absence of laws to prevent market manipulation /insider knowledge in the derivative markets. ( it is a casino out there) Forget about codes They have full real time access to all the data on the boards “including who is trading what”. It is not trading codes . It is its shear power dragnet , which scoops all in one direction then reverse .They are the only one to know when to reverse.

Posted by Haverlad | Report as abusive
 

The Great Depression and all of the subsequent bubbles are caused in substantial part by financial institutions.
No other nation on earth has had inflicted such enormous damage to its own and the world at large, except in America. Regulation is the only way to go before these monsters inflicting more harm to PEOPLE.

Posted by jon | Report as abusive
 

CIT is a garbage company. GS is not in the welfare business, not sure why anyone should want them to be. Stop making CIT out to be some sort of pariah that needs to be saved – it couldn’t even turn a profit in the good times.

Posted by AJ | Report as abusive
 

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