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Goldman Sachs is back in the SPAC game. According to Bloomberg, Wall Street leaders are back in the Blank Cheuk trading business three years after beating a sudden retreat from the market. The bank is reportedly going to adopt a DE-SPAC-ITO approach, screen transactions on a case-by-case basis, and limit partner sponsorships. But the news sends a clear signal, and where Goldman leads, rivals could continue.
Not long ago, major investment banks had sworn Spacs, surprised by a parade of reputable fallout, regulatory scrutiny and disastrous deals. However, a highly misused special purpose acquisition company is staging its comeback. What’s impressive is not just the market revival, but also the speed at which investment banks recalibrate reputation risk thresholds amid increased pools and weak monitoring.
SPACS, or “Blank-Cheque” companies, raise capital through IPOs, to acquire private companies and publish them, bypass traditional listing routes. They usually have two years to close the transaction or return the funds to the investor.
After collapse after 2021, the market has shown signs of $11 billion since the start of the year, starting from the meagre $2 billion at this point in 2024.
The transaction is now small and confidence remains measured. However, as interest rates rose, SPACs became a convenient place for hedge funds to park their cash. Also, while the public stock market is buoyant, SPACS offers a more controlled (still highly controversial) route to the market, as traditional IPOs have acquired mixed receptions.
But being published via SPAC is just the beginning. The sponsor will then need to complete the merger and, crucially, persuade SPAC shareholders not to redeem the shares for cash. Redemption options are a strong check of transaction quality – sometimes, not always. Many spaks still expire without a trade, leaving sponsors in songs from their pockets of between $5-10 million.
Spack wasn’t necessarily a major bank event. In the early 2000s, they were in the realm of niche players like Early Bird Capital. As the market matured, middle class banks such as Citigroup, Credits Wisdom and Deutsche Bank led these transactions. Even leaders such as Goldman Sachs, Morgan Stanley and JPMorgan were involved in the event.
However, as SPACS grew between 2020 and 21, the quality of the trade has deteriorated. Investor losses have resulted in many companies missing out on forecasts, correcting financial statements, and filing for bankruptcy. One industry nickname summed it up: “Shell promoters are getting crap.”
Among the wreckage, legal risk was a major concern for banks, but the reputable fallout was even more looming. By mid-2022, the largest banks had withdrawn in large numbers as trading activity had dried up. Even after the SEC became clear in 2024, stigma remained until now that SPAC underwriters do not face liability for dangerous disclosures in their merger prospectus.
Goldman’s returns are consistent with a broader regulation and political reset. The current US administration is embracing a more laissez-faire approach to financial market regulation. Banks such as Canter Fitzgerald, whose former chairman and CEO Howard Lutnick currently serves as US Secretary of Commerce, not only undertakes Spacks, but sponsors them. Trump Media & Technology Group, the parent company of Truth Social, was published through a SPAC merger last year and replaced the NASDAQ under the ticker DJT.
Suddenly, the mathematics of reputation look different. Banks once were wary of headlines and hearings, but now they feel that the costs of remarriage have been significantly reduced.
This pattern is not specific to SPACS. A similar conversion occurred in the cipher. JPMorgan CEO Jamie Dimon once dismissed Bitcoin as a “scam” and a “Ponzi plan.” Other major banks also explicitly piloted them. Today, these same institutions assume public inventory and convertible bond offerings for crypto companies.
Certainly, the shift is an opportunistic leak. After all, SPAC and Crypto transactions offer favorable rates at a time when investment banks are still recovering. However, it also reminds us that reputational risk is dynamically assessed. Under strict surveillance, banks are cautious and nervous about regulatory investigations and headlines that could trigger political backlash. So does suppression if scrutiny is eased. In today’s climate, reputational damage is unlikely, or at least inexpensive.
There is also the safety of the numbers. Once a leader like Goldman reenters the market, the flock continues to keep from missing. When everyone participates, criticism spreads. Reputation risks are easier to absorb when scattered throughout the sector.
This is not a verdict on the merits of SPACS (or cryptography). Rather, it is how quickly Wall Street risk calculations adapt to changes in politics, regulations and peer behavior. Above all, investment banks are mercilessly practical.
SPAC Revival shows how reputation exposure is priced as variable costs. For now, rewards outweigh the risks. If the pendulum looks back, today’s enthusiastic underwriters will be careful at least until the next boom.
