What Google Does That Public Entities Do Not Do

The new Bloomberg Businessweek notes that Google has hired a number of investment professionals to manage its $26.5 billion [and growing] corporate cash stash. Google has also set up its own trading floor. These top flight professionals are well paid by any standard but earn less than many Wall Street pros. Why? While Google may pay less than elsewhere this is offset by stability. Google is sure to be around and it’s known as a great place to work.

Compare this behavior of hiring in-house talent at reasonable compensation to what most government agencies are doing. Morgan Stanley is set to earn between $23 million and $135 million in fees for helping to sell the government’s stake in Citigroup. They’re going to get 0.3 cent per share for each electronically routed sale and an astonishing 1.75 cents per share for those traded through block sales. This is on top of a flat $500,000 fee just for taking on this less than taxing job. Will Morgan Stanley truly add millions of dollars of value to the straightforward multi-month sale of the government’s 7.7 billion shares? It’s highly likely a systematic dollar cost averaging technique could accomplish equal or better results without incurring any fees. Indeed, Citigroup itself was one of the companies seeking to handle the sale of shares. Had they done it in-house those hefty fees would not be reducing the value of the company.

            Also, by pre-announcing their intention to sell their state, our leaders almost certainly cost taxpayers money. Any other greater than 5% owner would have sold what they could prior to filing the required disclosure of the sales that had already occurred. When the announcement was made on March 26^th, Citi had closed at $4.31 /share. When the story broke on May 26^th saying that 20% of the government’s position had been liquidated, Citi shares had fallen to close at $3.86.

            Enigmatically this is how the story was reported by the AP…

“The Treasury Department said Wednesday it raised $6.2 billion from the sale of 1.5 billion shares of Citigroup stock it received as part of the government’s rescue of the bank.

The stock sold for an average price per share of around $4.33, Treasury said …”

            By my calculations $6.2 billion divided by 1.5 billion shares equals $4.13333 /share. I wonder how they arrived at their $4.33 /share announced average price.