Goldman Issues $2.75 Billion of Bonds as Bank Borrowing Rises

Goldman Sachs Group Inc. (GS) sold $2.75 billion of bonds after reporting second-quarter earnings that lagged behind analysts’ estimates.

The bank issued 5.25 percent, 10-year notes that yield 230 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The offering, which was increased by $250 million, follows Morgan Stanley (MS)’s $2 billion sale yesterday that included $1.5 billion of 5.5 percent, 10-year notes that were priced at a 250 basis-point spread.

Goldman Sachs, the fifth-largest bank in the U.S. by assets, said on July 19 its net income in the quarter was $1.09 billion, or $1.85 per share, short of the $2.30 per-share average estimate of 23 analysts surveyed by Bloomberg. Bond investors shouldn’t be fazed by the disappointing quarter, said Marilyn Cohen, who oversees $320 million as chief executive officer of Envision Capital Management in Los Angeles.

“They’re still Goldman and they still have an uncanny way of making money,” said Cohen, who bought some of the bank’s bonds after the earnings report. “Even though they are reviled by the media and by most people on Main Street, the institutional investor knows that Goldman has the ability to crank it out every year.”

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment.

The sale was the bank’s first U.S. debt offering of at least $500 million since April.

Bonds Fall

The bank’s $3.85 billion of 3.625 percent notes due February 2016 fell to 100.3 cents on the dollar on July 20 after the earnings announcement, from 101.2 cents at the beginning of the week, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities rose to 100.5 cents at 10 a.m. today in New York.

Goldman Sachs is joining banks raising money in the U.S. bond market even as relative yields on their debt climb. Banks issued at least $24.9 billion of debt this month through yesterday, almost triple the $8.95 billion of sales in the same period in June, Bloomberg data show.

Average spreads on bank bonds have increased 10 basis points to 213 basis points, or 2.13 percentage points, since June 30, according to Bank of America Merrill Lynch index data. The average yield has dropped to 3.78 percent from 3.83 percent during the same period.

Goldman Sachs last issued 10-year notes in a size of at least $500 million in July 2010, selling $750 million of securities with a 5.2 percent yield, Bloomberg data show. The bank issued $1.35 billion of five-year notes on April 28 in an add-on to an existing offering.

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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