May 23 (Bloomberg) -- Goldman Sachs Group Inc., the world's most profitable securities firm, is the No. 1 underwriter of U.S. initial public offerings at the expense of investors who have lost money in 8 of the firm's 10 IPOs this year.

Shares of Goldman-led IPOs, including Lazard Ltd.'s $855 million sale, fell an average 10.8 percent in 2005. By contrast, initial offerings managed by Morgan Stanley, Goldman's closest competitor, rose almost 4 percent. Lazard, the investment bank headed by Bruce Wasserstein, is down 15 percent since it started trading on May 4.

New York-based Goldman, which gets almost 25 percent of its investment banking revenue from share offerings, earned about $120 million from arranging U.S. IPOs so far this year, data compiled by Bloomberg show. The buyers of these stocks, meantime, are nursing losses of as much as 30 percent.

``Goldman has turned its back on the `buy side' and chosen to do deals in a way that benefits their investment-banking clients,'' said Ben Holmes, an IPO specialist at Boulder, Colorado-based Protege Funds LLC.

Thomas Tuft, 58, chairman of Goldman's equity capital markets group, and David Solomon, 43, who oversees equity underwriting, declined to comment. Goldman, led by 59-year-old Chief Executive Officer Henry Paulson, ranked as the top arranger of U.S. IPOs in three of the past six years.

``We would not have had the success in our equities business without taking into consideration the interests of both our buy side clients and issuing clients,'' said Goldman spokesman Peter Rose in an interview.

Bronfman Bonanza

These clients include billionaire Edgar Bronfman, whose Warner Music Group Corp. went public at $17 on May 11. While Warner Music has since dropped 5.3 percent, Goldman and New York- based Morgan Stanley shared underwriting fees of $26.3 million with 13 other securities firms.

About 53 percent of all of this year's IPOs in the U.S. -- 45 of 85 -- are trading below their offering price, Bloomberg data show. That compares with 42 percent in the same period last year, when companies raised $10.2 billion. This year, U.S. IPOs have attracted $12.9 billion.

The increase in underperforming IPOs occurred as the Standard & Poor's 500 Index fell 1.9 percent since the end of December, after rising 26 percent in 2003 and 9 percent in 2004.

``When there's a market downturn, you get lots of deals priced below the price range,'' said Jay Ritter, a finance professor at the University of Florida in Gainesville, who has analyzed the performance of IPOs for the past 14 years.

Soap and Software

Stock sales managed by Goldman rewarded investors in the past. Goldman offerings rose 41 percent on average in their first three years of trading, according to data tracked by Ritter from 1990 to 2003. The returns exceeded IPOs managed by Morgan Stanley, Merrill Lynch & Co. and Credit Suisse First Boston. All the firms are based in New York.

This year, Goldman is responsible for marketing the worst- performing group of IPOs in the U.S. among the five busiest underwriters, according to Bloomberg data.

Goldman's best-performing U.S. IPOs this year are Prestige Brands Holdings Inc., the Irvington, New York-based maker of consumer products such as Comet soap and Murine eye drops, up 5.8 percent since Feb. 10; and American Reprographics Co., a Glendale, California-based software maker, up 13.9 percent since Feb. 4.

Lazard Fees

The worst-performing Goldman IPO has been Tampa, Florida- based Syniverse Holdings Inc., which sells technology to wireless phone companies. The stock is down 30.6 percent since the Feb. 10 IPO.

``It's an unsettled time for IPOs,'' said Elizabeth Newberry, managing director at New York-based Carret & Co. that manages about $1 billion and hasn't bought shares of an IPO this year. ``I would think twice before I would become an issuer.''

Wasserstein, the 57-year-old investment banker who runs New York-based Lazard, was under pressure from former Chairman Michel David-Weill to get the IPO completed by the end of the year or resign. Wasserstein declined to comment.

``Goldman Sachs probably judged the price right, but they were negotiating with a tough investment banker,'' said Sanford R. Robertson, co-founder of San Francisco-based investment bank Robertson, Stephens & Co., who now runs buyout firm Francisco Partners LP.

Goldman, the third-largest securities firm by market value, shared about $42.7 million with six other firms for handling the Lazard sale, the company said. The firm may have lost money helping to prop up Lazard's stock after the offering was completed, if it adhered to the traditional practice of agreeing to buy back shares in a new offering to help prevent the price from tumbling.

`Bloody Nose'

``Bruce got his $25 and Goldman is licking its wounds from paying to help support a stock that is around $21,'' said Luis Rinaldini, a former Lazard partner and a founding partner of Groton Partners LLC, a financial advisory firm in New York. ``Goldman has the slightly more bloody nose than Lazard.''

Goldman and Morgan Stanley helped Warner Music raise $554 million by selling 32.6 million shares of at $17 each. The New York-based company earlier had sought between $22 and $24 a share. The deal valued Warner Music at $2.43 billion, which was less than the $2.6 billion that an investor group, including Bronfman, paid last year to buy the New York-based company from Time Warner Inc.

Warner Music spokesman Will Tanous said the company and its management, including Bronfman, can't comment on the IPO because of U.S. Securities and Exchange Commission rules.

Earnings Comparisons

``In the long term, if you frustrate a large group of corporate clients or major private equity firms with missteps in pricing, it could damage the franchise,'' said J. Rock Tonkel Jr., 42, head of investment banking at Arlington, Virginia-based Friedman, Billings, Ramsey Group Inc., which ranks among the top 10 U.S. IPO underwriters since 2003.

Goldman was the most profitable of the world's biggest securities firms in the first quarter, with net income of $1.51 billion in the first fiscal quarter, compared with $1.47 billion at Morgan Stanley and $1.21 billion at Merrill Lynch.

Goldman's revenue from managing share sales fell 15 percent in the fiscal first quarter that ended Feb. 25 from a year earlier. That compared with a 36 percent drop at Morgan Stanley, this year's top global manager of IPOs, and a 31 percent increase at Lehman Brothers Holdings Inc.

Bankers at Goldman tend to be ``slightly overly aggressive sometimes, but ultimately it's up to the investor to not pay more than they feel the IPO is worth,'' said Nick Robinson, a London- based fund manager at Aberdeen Asset Management, which oversees $2 billion in U.S. stocks and trades through firms including Goldman.

Boise Cascade

Goldman has shown it will step back when it's apparent a deal won't be done at the price an issuer wants. Boise Cascade Co., a wood and paper producer owned by Chicago-based Madison Dearborn Partners LLC, canceled its IPO on May 18 after earlier cutting the price of the offering.

IPOs sold in western Europe are faring better this year than in the U.S. In Western Europe, 65 percent of this year's IPOs -- 78 of 119 -- are trading at or above their offer price, according to Bloomberg data.

``I don't think you'd find too many people saying that because you've got a large percentage of underperforming IPOs in the U.S. we won't buy IPOs in Europe,'' said Neil Austin, head of new issues at KPMG Corporate Finance in London.

Micro Focus International Plc, a U.K. software company, cut the price of its stock offering by more than 10 percent and then sold shares on May 12 at 130 pence ($2.38) each. Since then, the stock has gained 17 percent. The transaction was managed by Goldman and UBS AG, Europe's biggest bank by assets.

Swiss Biotech

Speedel Holding Ltd., a Swiss biotechnology company, shelved its IPO plans on May 11 after investors sought a 40 percent discount on the sale. UBS and Merrill Lynch were working with Speedel.

``The climate for the IPOs of young biotech companies worsened actually in the last couple of days or weeks generally,'' Speedel Chief Executive Officer Alice Huxley said in Zurich on May 12. ``The reason is general disappointment of the specialist investors who invested in several IPOs and are facing book losses of the value of their investments.''

Following is a chart of Goldman's U.S. IPOs in 2005 and how they have fared:

Company Name         IPO Price     Close on May 20       %Change
Lazard (LAZ)            $25.00        $21.34             -14.6%
FTD Group Inc. (FTD)    $13.00        $10.64             -18.2%
OptionsXpress (OXPS)    $16.50        $14.11             -14.5%
Syniverse (SVR)         $16.00        $11.10             -30.6%
Celanese (CE)           $16.00        $15.55              -2.8%
Warner Music (WMG)      $17.00        $16.10              -5.3%
Fairpoint Comm (FRP)    $18.50        $14.93             -19.3%
Jorgensen (JOR)         $10.00         $7.80             -22.0%
Prestige Brands (PBH)   $16.00        $16.92              +5.8%
Am. Reprographics (ARP) $13.00        $14.81             +13.9%
                                        Average %Change  -10.8%

To contact the reporter on this story: Brett Cole in New York coleb@bloomberg.net Christine Harper in London charper@bloomberg.net

Last Updated: May 23, 2005 01:28 EDT