Goldman Sachs Group Inc. (GS) is considering a bid to buy Royal Bank of Scotland plc.’s (RBS) GBP3 billion ($4.8 billion) property loans portfolio, according to the Sunday Times. Besides Goldman, Lone Star Funds and Blackstone Group LP (BX) are also said to be in the race for purchasing the loan portfolio. The first round of bids is expected to be submitted within a couple of weeks.
 
The financial crisis had severely jolted Royal Bank of Scotland though it managed to stay afloat with the government’s help. The company is disposing some of its assets as part of its efforts to right-size the balance sheet.
 
In a separate development, Goldman is said to have removed the pay cap on its employees in the U.K. The company has provided stock awards for its employees in August this year after capping the London employees’ salary and bonus last year at £1 million ($1.6 million) following the U.K. government’s imposition of a one-time tax on bonuses last year. The bonus tax on banks is tendered out to gain control over the multimillion-pound bonus payouts by an industry bailed out by taxpayer cash.
 
The shares awarded to the Goldman employees in the U.K. cannot be sold in the next five years, even if the employee leaves the company. Shares may be retracted by the company based on the bank’s performance. The payments were said to be authorized by the U.K. Financial Services Authority.
 
Goldman has hit the headlines in recent times for a number of unflattering news. This included the $550 million with the Securities and Exchange Commission for settling a civil fraud suit linked with mortgage investments. Also, the new financial regulatory reform will remain a challenge for Goldman’s top line as banks will be restricted from proprietary trading and investing more than 3% of their capital in private equity or hedge fund investments in the long term.
 
Nevertheless, we expect the company to benefit from its well managed global franchise, strong capital base and leading position in investment banking, capital markets, trading, private equity and asset management business. We believe the SEC settlement has removed much of the overhang on the stock; with expectations for an improved operating environment in the upcoming quarters, Goldman is poised to grow in the long term.
 
We believe strategic purchases of loan portfolio should help the company to grow while the removal of the bonus tax cap should help in retaining its some of its experienced employees in the U.K. unit.
 
Goldman is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock is also rated Neutral in the long term.
 
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