Goldman Sachs shrinking its SPAC business amid regulatory crackdown

https://www.cnbc.com/2022/05/09/goldman-sachs-is-shrinking-its-spac-business-amid-regulatory-crackdown-and-market-turmoil.html

by lxm • 4 years ago

160 105 4 years ago

cnbc.com

mqus• 4 years ago

TIL: SPAC - Special-Purpose Acquisition Company -> https://en.wikipedia.org/wiki/Special-purpose_acquisition_co...

eatonphil• 4 years ago

I recommend following Matt Levine's free Money Stuff column if you're into this.

https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...

bozhark• 4 years ago

I recommend not.

FabHK2• 4 years ago

Seconded. Matt Levine's column is informed, informative, witty, and entertaining.

3np• 4 years ago

Thanks. Thought it was short for Super PAC (https://www.fec.gov/help-candidates-and-committees/filing-pa...) first and found the whole thing confounding.

PedroBatista• 4 years ago

Looks like Goldman Sachs got a call telling them the SEC police was coming and got out of the party in a hurry ( and what a party it has been.. )

Only retail investors ( aka suckers ) will be holding the bag/beer, as always.

I'm curious to know if Goldman Sachs already has an alternative scheme/scam running or it's a case of "chilling out for awhile".

atlasunshrugged• 4 years ago

I'll admit I have some recency bias here as I just re-read The Big Short about the '08 financial crash but I think you're probably right on the first point, they got a tip or heard around the proverbial finance industry watercooler that a crackdown was coming and decided to exit. I'm 100% certain they've got something else in the works, probably more opaque for regulators and the public with less risk to Goldman and a higher profit margin if history is to be believed.

chowells3• 4 years ago

It's not a big secret that the SEC doesn't like SPACs. They make these things really clear before they start taking action. They specifically have an issue with the fact that the prospectus for a de-SPAC merger isn't (yet) subject to all the same reporting rules as an S-1 filing.

When companies have to present their financials coldly instead of painting the nice warm dream, it's gonna deflate the market. Between that and the other factors hitting the market now (interest rates and inflation), there just isn't going to be a huge amount of work in the space in the future.

You really don't need to assume a conspiracy of some sort is involved when all the completely public factors justify this.

Adraghast• 4 years ago

That tip would be the nearly 400 pages of proposed regulations the SEC dropped in March:

https://www.sec.gov/rules/proposed/2022/33-11048.pdf

lordnacho• 4 years ago

As a firm they seem to be pretty interested in hearing stuff from the market. It was the only bank I worked with where they wanted some nugget off you each time we went out for dinner. The same people when moved to other banks would behave differently, so I guess it's part of the firm's culture: get some piece of info from each client.

Doesn't have to be nefarious though, if it doesn't make money for them they leave. Someone somewhere else in the business will find some other thing.

pavlov• 4 years ago

There's always crypto...

However the SEC recently increased its "Crypto Assets and Cyber Unit" staff from 30 to 50. Hopefully they'll bring the hammer down on token offerings with enough force to scare the big VCs away, at least.

gowld3• 4 years ago

50people vs $billions in scams.

chrisgd3• 4 years ago

The SEC has been saying for months they were taking a harder look here. Just reading the writing on the wall. All the companies that have gone public via SPAC have not done well, not sure who would go public that way - I imagine no one will be holding the bag because most will give the money back and go away

rchaud3• 4 years ago

If you have your ducks in a row as a business, you don't have to go public via SPAC.

MomoXenosaga• 4 years ago

Has anyone from Goldman ever actually been in trouble from the authorities?

That was my take from the 2008 financial crisis: the government had to fix everything. Again. And no Hollywood movie about the European, American and Asian finance ministers who had to make sure the ATMs kept working.

odiroot• 4 years ago

Yes Tim Leissner but nothing related to 2008: https://en.wikipedia.org/wiki/1Malaysia_Development_Berhad_s...

hackernewds3• 4 years ago

One need only look at the nickel commodities market to understand that Goldman socks measures these things in terms of expected value, where if the benefit exceeds the EXPECTED VALUE (probability*fine) of the fines, they will have an active desk for it.

https://www.cftc.gov/PressRoom/PressReleases/7505-16

rchaud3• 4 years ago

Roger Ng was found guilty by a US court of conspiring to loot Malaysia's 1MDB fund:

https://www.npr.org/2022/04/08/1091801453/1mdb-fund-goldman-...

FabHK2• 4 years ago

Fabrice "Fabulous Fab" Tourre was basically Goldman's fall guy. Reasonably junior (in investment banking, VP is junior - analyst, associate, VP, director, MD) who had sent some stupid emails to his girlfriend ("The whole building is about to collapse anytime now. Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!").

He was charged, but nobody else from GS, AFAIK.

https://www.usatoday.com/story/money/business/2013/08/01/gol...

(I remember because he besmirched my good name :-)

aussiegreenie• 4 years ago

Goldman will be on the 'other side', that is, shorting the existing SPAC companies knowing that theu are overpriced.

anonu4• 4 years ago

GS definitely got that call. Remember, long term greedy..

octodog2• 4 years ago

Or they read the SEC draft rules that were released on March 30th on the public internet.

https://www.sec.gov/news/press-release/2022-56

It's very disappointing how fact-free this discussion is.

SheinhardtWigCo• 4 years ago

John Tuld: Let me tell you something, Mr. Sullivan. Do you care to know why I'm in this chair with you all? I mean, why I earn the big bucks.

Peter Sullivan: Yes.

John Tuld: I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more. And standing here tonight, I'm afraid that I don't hear - a - thing. Just... silence.

https://youtube.com/watch?v=K05sxfa4zdM

toomuchtodo2• 4 years ago

Both a great lens into part of the GFC and a spectacular cinematic piece. Tremendous scene.

ericmay4• 4 years ago

I agree. Margin Call and The Big Short (the book is sooo good even if you've seen the movie!) are the best two movies that came out of that entire debacle. That scene was enjoyable. They really nailed the casting and conversations.

HWR_14• 4 years ago

The part that bothered me is that, as I recall, there was no actual margin call in the movie. I guess it all was done in advance of a margin call? I don't recall exactly.

Great movie though

shrimp_emoji• 4 years ago

I pray Jerusalem -- that the entire world -- can afford the... rarity... of a perfect knight.

daniel-cussen• 4 years ago

What does that mean?

chrisgd3• 4 years ago

I think an even better quote for this situation is the one where the same character says “there are 3 ways to make money - be first, be smarter, or cheat. And the easiest is always to be first.”

georgeecollins• 4 years ago

I don't know where it is from originally, but that quote is in the incredible scene with Jeremy Irons in Margin Call.

I strongly recommend that movie.

jstx13• 4 years ago

Yes, the person who was just briefed on what was happening, and in very simple terms because he doesn't understand the technical language of complex financial instruments - that's the person who's guessing what "the music" is going to do?

That whole movie is so shallow when you think about it for more than 2 seconds.

dilyevsky3• 4 years ago

I think you’re assuming a little too much about what Irons character does/doesn’t know about the overall state of financial system. He may had other analysts/industry insiders briefing him on various things for months by that point.

paxys3• 4 years ago

You have to watch it a bit closer. He didn't ask for the problem to be explained in simple terms because he didn't understand what was going on. Instead he wanted to make sure his subordinates understood the problem and didn't try to hide their ignorance behind needless complexity. This is a strategy used by all of the most effective managers in the real world ("pretend that I'm stupid", "explain it to me like I'm five"). It was clear from the get go that he was the smartest person in the room in every scene he was in.

The movie also makes clear multiple times that the only people who were surprised by what was going on were the little guys – risk analysts and middle management. People at the top got the news and were simply like "ok guess it's finally happening".

If you ask around people who do this stuff for a living, all of them will tell you that out of the dozens of movies about the financial crisis, Margin Call was conceptually the closest one to how things actually work in the industry (obviously disregarding the Hollywood-esque dialog and characters).

joshocar• 4 years ago

I was literally just talking to a SPAC CEO last weekend that was in a deal with Goldman that got dropped by them. Apparently, there are regulations coming down from the SEC and Goldman didn't want to deal with them and/or the regulations changed the profit calculus.

mattbrewsbytes• 4 years ago

I suspect that similar to how the "market" has various things "priced in", larger financial firms want to stay ahead of regulation and essentially change their business models around ahead of regulations.

I think they all operate on the principle of being first for everything is more profitable, including exiting poor investments.

ericmay4• 4 years ago

The best way to think of "priced in" when you are reading something that someone else wrote is to replace those two words with "I don't know". Nothing is priced in. Everything is priced in. When someone thinks of an idea, by virtue of sharing that idea it's deemed to be "priced in".

vmception4• 4 years ago

Can someone explain Goldman's role? What are they underwriting? SPAC's merge with companies with capital that SPAC's already have collected. Was Goldman underwriting the formation of new SPACs when those SPACs are initially collecting money?

bradwood• 4 years ago

SPACs themselves need to float before they can make an acquisition. The investment bank provides the primary markets support for this, sets up a syndicate, and markets the spac to the institutional investor community.

There may be a level of underwriting going on also, as is the case with a rights issue or IPO, but it's probably more the marketing and access to the bank's client base that the spac benefits from.

JumpCrisscross4• 4 years ago

Was Goldman underwriting the formation of new SPACs when those SPACs are initially collecting money?

SPACs are chock full of fees to Wall Street.

When the SPAC goes public, it pays an IPO fee. The bank, having to comply with fewer regulations than in a traditional IPO, makes a healthy profit. When the SPAC negotiates a merger it pays M&A fees. When shareholders are presented with the merger and asked to vote that comes with a fee. If there is a PIPE, there are, of course, more fees.

Later, when the sponsors sell their stock, there will be brokerage fees for the block trade. And I assume, in the final stage of a SPAC’s lifecycle, there will be de-listing, liquidation and/or distressed debt fees.

costcofries2• 4 years ago

All I can think when I hear SPAC is Chamath and well, he should at this point be below everyones line.

strikelaserclaw• 4 years ago

people should stop idolizing others just because they are wealthy, some of these guys are straight up gordon gekko type sociopaths

tssva• 4 years ago

Unfortunately that is exactly why many people idolize them.

paxys3• 4 years ago

1. Get lucky backing the right companies during the biggest tech bull market in history and get very rich

2. Build a Twitter following and preach on topics on which you have zero knowledge or experience

3. People will believe you because you are rich (like they want to be) and so you must obviously be a genius

4. Use that influence to push your political views and/or other hustles like your favorite cryptocurrency, NFTs, SPACs)

The standard VC playbook these days

xiphias2• 4 years ago

He had an overconfidence in himself in the last few years, and yes, that line was awful, but I’m sure any of us would have an insensitive line if we would be trying to do what All In podcast does: try to say controversial things as well to get a real debate going.

costcofries2• 4 years ago

I would not. That line along with EVERY SINGLE SPAC he has promoted (created) has absolutely devastated his brand. I am not certain that was his intent.

yunohn• 4 years ago

but I’m sure any of us would have an insensitive line if we would be trying to do what All In podcast does: try to say controversial things as well to get a real debate going.

“All of us have our weak moments on public television around sensitive topics like genocide, while speaking as a billionaire”

bonecrusher2102• 4 years ago

Here's the best source I've ever read explaining the SPAC model and it's pitfalls. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3720919

And the discussion on HN: https://news.ycombinator.com/item?id=26037059

spxdcz• 4 years ago

Related: I wrote some code that attempts to extract the latest SPAC data (which you can filter/export) from SEC filings as they're filed: https://docoh.com/spacs

anonu4• 4 years ago

SPACs are ridiculous. The sponsors take the lions share of the profits. Free money in many cases.. and the small investors get absolutely nothing. The whole scheme was rife with manipulation and excess. Not surprised GS is taking the conservative route. It only means they know the hammer is coming down on the shenanigans that took place.

simulate-me• 4 years ago

It's easy to hate on SPACs. The duds brought to market were numerous. However, it was refreshing to see some new companies go public, which briefly reversed the trend of companies staying private for longer and longer. Rather than hate on SPACs, I would like to ask: has any company that went public via a SPAC been successful?

jessaustin3• 4 years ago

Maybe you would have gotten some edifying responses if you had confidently declared "no such company has been successful"... even if you don't believe it, people like to contradict.

Even if the purchased firm were solvent after some elapsed time, that wouldn't necessarily mean the SPAC investors had made any money.

dqpb• 4 years ago

I guess that means they won't be changing their name to Goldman SPACs

Goldman Sachs shrinking its SPAC business amid regulatory crackdown

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