Goldman Cashes In Its Remaining Stake In ICBC
Goldman Sachs ( GS ) is finally giving up its remaining stake in the Industrial and Commercial Bank of China (ICBC) to raise $1.1 billion in cash. This is the sixth and the last time that Goldman is selling its stake in the world's largest bank by market capitalization since it acquired a 4.9% stake in August 2006. (( Goldman Raises $1 Billion in ICBC Share Sale , The Wall Street Journal, Jan 29 2012)) Goldman accelerated the sale of ICBC shares over the past year as it went to the market with a sizable ICBC stake last April (see Goldman Raises $2.3 Billion From ICBC Stake Sale ) and again in January 2013 (see Goldman Raises Another Billion From ICBC Stake Sale ).
Once the final stake sale is complete, Goldman will have pocketed more than $9.7 billion - a handsome profit given that the investment bank originally acquired the ICBC stake for under $2.6 billion.
We maintain a $160 price estimate for Goldman's stock - slightly above the current market price.
See the full Trefis analysis for Goldman Sachs
The ICBC Stake Was Important Through The Years…
The ICBC stake was the single largest investment by Goldman Sachs in recent years, and the size and importance of the investment is best understood by the fact that Goldman reported its revenues from ICBC as a separate item in its income statement. In fact, one of the biggest factors responsible for what was Goldman's second ever quarterly loss in Q3 2011 was the mark-to-market loss it incurred due to a drastic fall in ICBC's share price in mid-2011.
… And This Is How Goldman Cashed In On The Investment
Goldman used its stake in ICBC to raise quick capital on multiple occasions - often when it was in a tight spot financially. One such occasion was in June 2009 when it sold a chunk of the investment to raise capital towards returning the $10 billion aid it received from the government as part of the Troubled Asset Relief Program (TARP). And the second one came shortly after its Q3 2011 loss when the bank was struggling to make money in an economy plagued by deteriorating debt conditions in Europe.
The sale of the remaining ICBC shares will have some definite impact on Goldman's figures for this quarter and the whole year. While there will be a one-time boost to the bottom line from the sale, the size of the bank's equity trading portfolio will shrink by roughly $1 billion. The chart below represents the trading assets held by Goldman's equities business. You can see how a change in its forecast affects the Trefis price estimate for the bank's stock.
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