Goldman’s “True Blood” moment
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.
Read what my colleague Agnes Crane has to say on CIT too.