There are plenty of conspiracy theories out there concerning powerful investment bank Goldman Sachs (NYSE:GS) (have a look at goldmansachs666.com if you want to see a sample), but I won't be adding to them today.
A breach of agreement?
The "secret handshake" in the title refers to the signal that Goldman sent bond investors on Wednesday with an oddly-timed $2 billion bond issue. The signal wasn't difficult to decode, and that's why it verges on a breach of Goldman's agreement with the government to keep stress test results under wraps until they are publicly disclosed next week.
Goldman is one of 19 large banks that the government submitted to stress tests to verify whether they pose a systemic risk and if they are adequately capitalized. Other test subjects include Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC).
Indeed, the $2 billion issue wasn't guaranteed by the FDIC's Temporary Liquidity Guarantee Program (TLGP), which has enabled banks including Goldman, JPMorgan Chase (NYSE:JPM), and Bank of America (NYSE:BAC) to raise nearly $340 billion at yields favorable to similar bonds without a guarantee.
Nudge, nudge, wink, wink
Because the government had already discussed the preliminary findings of its stress test with Goldman last Friday, the nature and timing of the $2 billion issue -- shortly before the results are to be released publicly -- was thought to be a thinly-veiled signal to bond investors that the results don't contain any negative surprises.
If you consider that Goldman is lobbying the government to be able to repay its $10 billion TARP investment and continue to issue government-backed bonds under the TLGP, this is a rare misstep for a bank that has demonstrated extraordinary adroitness in managing its relationship with authorities throughout this crisis. Goldman should remember that discretion is the better part of valor.
More Foolishness:
