NEW YORK (CNN/Money) -
Goldman Sachs shares, already under pressure with the rest of the financial services sector, could face more difficulty soon as insiders get the ability to unload stock awards.
But despite the problems, some analysts are seeing signs of light for the New York-based investment bank.
Goldman went public five years ago, doling out large portions of stock to its partners. But unlike the usual six-month "lockup" for IPO insiders, aimed at preventing a quick cash-in, a longer period was instituted on large portions of stock as an incentive to retain employees.
On May 10, the "lockup" restricting the sale of 55 million shares by former employees expired, and in late June another 54 million shares will be able to be sold by current employees, a spokesman for Goldman Sachs confirmed.
The 109 million shares is about 23 percent of Goldman's outstanding stock.
"You have to assume the partners are going to sell," said Morris Mark, who worked at Goldman before the IPO and now runs hedge fund Mark Asset Management. "It's to be expected when the restrictions are lifted."
The average trading volume on the stock over the last 10 trading sessions has jumped 53 percent to 5.2 million shares from its three-month average volume of 3.5 million.
Any downward pressure from insider selling will likely contribute to an already tough month for Goldman shares, which have dropped 14.2 percent since their March high of above $108 per share. The decline is wider than the 9.2 percent dip in the financial sector as a whole, according to the AMEX Financial Select index.
"The risk here is that some shareholders decide to sell to diversify their portfolios despite the favorable outlook [for the company,]" wrote UBS analyst Glenn Schorr in a report released last week.
Peter Rose, a Goldman Sachs spokesman, said the company has not seen increased levels of insider selling among current employees, but it doesn't track sales of stock by people who have left the company.
There have been some high-profile departures following the Goldman IPO. They include former CEO Jon Corzine, who left the firm shortly after it went public and won a U.S. Senate seat, and former chief operating officer John Thain, who became CEO of the New York Stock Exchange.
When the NYSE named Thain CEO in December 2003, he held about $300 million in Goldman Sachs stock. During his Senate race, Corzine sold about 10 percent of his $410 million in Goldman holdings that were not restricted.
More than selling
However, the expiration of the IPO lockup isn't the only factor that may be contributing to increased volume on Goldman shares as an anticipated interest rate hike looms.
Financial stocks have been notoriously poor performers in rising interest rate environments as demand for debt underwriting dries up, and the carry-trade, or borrowing at low interest rates to buy higher-yielding securities, becomes less profitable.
But some analysts see the uncertain times as a buying opportunity.
UBS' Schorr upgraded the stock last Thursday to a "buy" from "neutral" despite the risks surrounding the expiration of the IPO lockup.
"It feels like there are no incremental buyers to be found, but timing the exact bottom has historically been tough," he wrote. "We think the recent weakness has been the storm before the calm, not vice versa." Schorr did not return calls seeking comment on the report.
While it faces a prospect of higher rates, Goldman has other factors working in its favor, such as rising revenue from using more of its own money to make bets on the financial markets.
In its first quarter ended Feb. 27, the company reported revenue from its trading and principal investments division of $4.1 billion, up 47 percent from a year earlier.
In addition, Goldman's "value-at-risk," a measurement of its own trading activity, rose to $71 million in the first quarter to $57 million a year earlier.
Goldman has also seen a resurgence in its investment banking business as its advisory and M&A activity recovers. For instance, the firm was one of the advisors for Kroll Inc., which announced Tuesday that it has agreed to be purchased by Marsh & McLennan.
Although the insider selling may put pressure on the Goldman shares, most watching the stock believe the impact will be short lived.
"It's a significant amount of stock coming to market," said Richard Bove, analyst with Hoefer & Arnett. "But it's a pretty liquid stock and they've been buying back shares over time. We don't think the impact will be that significant over the long run."
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