|Posted by George Freund on August 1, 2011 at 9:03 AM|
Lansdowne Partners sells entire $850m stake in Goldman Sachs
Lansdowne Partners, Europe's biggest hedge fund, has sold its entire $850m (£517m) position in Goldman Sachs in a move that underlines growing concerns about the prospects for the global banking sector.
The move is expected to send a stark message to Goldman, led by chief executive Lloyd Blankfein, about the strength of concerns among investors Photo: EPA
By Helia Ebrahimi, and Harry Wilson9:42PM BST 30 Jul 201118 Comments
The disposal – equivalent to just under 1pc of Goldman's equity – mirrors a similar sale Lansdowne made in 2008, ahead of the financial crisis.
The recent sale of 4.94m Goldman shares, revealed by The Telegraphfor the first time, will come as a further blow to the investment bank, which recently saw its shares hit levels not seen since spring 2009 after disappointing second-quarter results.
It marks a sizeable bet against the investment bank by the hedge fund, which sat on the top 20 list of Goldman investors, given the stake equated to almost 10pc of the $10bn funds Lansdowne has under management.
The move is expected to send a stark message to Goldman, led by chief executive Lloyd Blankfein, and other investment banks about the strength of concerns among investors.
It also echoes concerns voiced in the UK, most notably by Schroders' UK equities chief Richard Buxton, who in June met Treasury officials to warn of the danger of regulatory overload on British banks.
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Part of Lansdowne's decision-making process is understood to have focused on the reduction in the value of Goldman's proprietary trading operations as a result of regulatory changes in the US.
Under the so-called Volcker rules – named after former US Treasury secretary Paul Volcker – enshrined within the recent Dodd-Frank legislation, Goldman has seen its lucrative proprietary investing curtailed. It has also suffered as a result of industry reductions in the use of leverage, or gearing, following the financial crisis, which was one of the ways it used to make money when trading from its own book. In addition, Goldman, like other banks, is also making the transition towards much more onerous global capital requirements under the new Basel III requirements.
As a result of these changes, Goldman's return on equity has reduced from a traditional 24pc to 30pc range to approximately 15pc.
Earlier this month, the bank saw its shares hit a two-year low of $125.50, having fallen 19.2pc this year, on the back of news that it missed profit expectations for only the fifth time since going public more than a decade ago.
Profits in the second quarter of the year fell to $1.09bn, from $2.7bn in the first three months of the year, as its behemoth Fixed Income, Currency and Commodity division saw revenues tumble by 64pc from the first quarter.
The last time Landsdowne sold its Goldman Sachs holding was in the months leading up to the Lehman Brothers collapse in 2008. That sell-off marked the beginning of a crisis of confidence in the financial sector which culminated in Lehman Brothers' demise and a global economic meltdown. Unlike 2008, however, Lansdowne has not sold out of the banking sector altogether, having instead taken flight from investment banks and moved more capital to the retail banking sector.
After the Government, which owns a 41pc stake, Lansdowne is believed to be the third or fourth biggest shareholder in Lloyds Banking Group, despite the looming problems which may flow from the Independent Commission on Banking's final report, due to be published on September 12.
This month, Landowne's flagship $10bn UK fund, run by Stuart Roden and Peter Davies, will celebrate its 10th anniversary.
In the past decade, the fund has made compound returns of 15pc. However, this year Rodan and Davies are said to be feeling the pinch, with the fund trading down as much as 13pc, for the year so far.