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A Look at the Goldman Sachs Preferred Stock Deal


These types of deals make good long-term investments.

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Goldman Sachs (NYSE:GS) is shopping two preferred stock deals today: a perpetual 6.5% with a 10-year call (Series K) and a perpetual 6% with a five-year call (Series L) at $750 million and $500 million sizes, respectively. Goldman's outstanding floating and fixed preferreds trade at yields between 6.35% and 6.45%, so the first deal is coming in a little cheap.

The similar Wells Fargo (NYSE:WFC) deal that was sold last week ended up pricing 25 basis points inside of its initial guidance.

These really seem like the kind of deals to be picking up to stick in the drawer for the rest of the year if you think the S&P 500 (INDEXSP:.INX) trades in a 7% to 10% range and ends up close to where it started. As a fun fact and history lesson on how bank credit risk and interest rate risk are priced today, the Goldman Sachs Series B preferred stock issued in October 2005 (with a five-year call) came at 183 basis points over five-year Treasuries. If the five-year callable preferred stock being shopped today were to price at 6%, that would be 429 basis points over the five-year Treasury.

Author's note: In the final pricing announced this afternoon, Goldman Sachs launched the Series K at 6.375% and the Series L at 5.7%.

Twitter: @MichaelSedacca
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No positions in stocks mentioned.

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