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Chris Hondros / Getty Images Despite a hugely profitable year, Goldman Sachs has lost its Midas touch as the premier investment bank. Charlie Gasparino on how the competition caught up and what its future holds.
The PR spin out of Goldman Sachs these days—just as the firm is about to redistribute billions of taxpayer bailout money in the form of year-end bonuses—is that the firm is once again very solid. The traders are making money, and Goldman’s famed “client” or investment-banking business, which manages the investment needs of the world’s biggest companies, hasn’t been touched, the people at Goldman assure me. Big companies are still flocking to Goldman’s investment bankers to sell stock or for advice on mergers and acquisitions.
But don’t bet on it.
“All our clients used to say they need to have Goldman in on every deal because of the firm’s reputation as the smartest bankers on the Street,” said one executive at J.P. Morgan. “We don’t get that anymore.”
To be sure, Goldman is immensely profitable thanks to its savvy traders, hence its massive bonus pool that's expected to grow to around $20 billion by the end of the year and the spectacle of the firm’s normally press-shy CEO Lloyd Blankfein trying to court reporters with bizarre claims that the firm’s bankers and traders are really doing “God’s work.” But that doesn’t mean Goldman’s image problems haven’t translated into a bigger problem that is showing signs of affecting its bottom line, or to be more precise, the bottom line of Goldman’s business outside risk-taking: its once-mighty investment bank that services the needs of the world’s biggest corporations.
You see, before Goldman became what is in essence a risk-taking hedge fund under Blankfein, the firm was Wall Street’s premier investment bank. No longer, it seems. Goldman’s deal-making machine faces mounting competition from megabank J.P. Morgan, and now from Morgan Stanley, which had been losing ground, but is now, like J.P. Morgan, challenging Goldman in the business of underwriting stocks for major companies, according to the latest “league-table” statistics from a company called Dealogic that tracks such activity.
These deals are important because they represent Wall Street's real growth businesses: Banks have been issuing stock in massive numbers this year both to repair their toxic-debt-ridden balance sheets, but also to repay government bailout money. (M&A and IPO activity have been weak compared to past years.) What’s more, these same statistics indicate that Goldman is showing few signs of reversing this trend, which seems to have corresponded nearly to the moment its current string of bad press began in early 2008, as the financial crisis started kicking into high gear.
• Jacki Zehner & Katharine Rhodes Henderson: Can Goldman Find God?What can account for Goldman’s looming second-tier status in what used to be the firm’s first-tier business? Some of it is clearly better competition. J.P. Morgan CEO Jamie Dimon wisely steered his firm clear of the subprime crisis and is considered one of the most respected CEOs in corporate America, which carries its own cachet. Moreover, J.P. Morgan simply has more resources to offer clients than Goldman, such as a massive balance sheet of bank deposits. Meanwhile, Morgan Stanley CEO John Mack, after getting battered during the financial crisis with risky trades, has changed the firm’s business model to focus on providing high-end financial advice to corporations.
But surveys taken by some of these same rival firms have also indicated that the controversy surrounding Goldman—which includes charges that the firm received favored status during last year’s bailouts and is now using government money to enrich its partners—is taking a toll on its reputation. Rightly or wrongly, Goldman has begun to symbolize the unholy relationship between big government and Wall Street, which gets bailed out with taxpayer money and earns billions of dollars in profits as unemployment on Main Street rises to 10.5 percent. And in an era where corporate America is more politically correct than ever—firms now routinely highlight their commitment to left-leaning causes such as “green jobs”—it’s becoming increasingly politically correct to choose bankers other than the guys at Goldman Sachs.
View as Single Page 12 Back to Top November 29, 2009 | 11:40pm Facebook | Twitter | Digg | | Emails | print Charlie Gasparino Goldman, Lucas Van Praag Goldman, Goldman Sachs Fed, Goldman Sachs Investment Bank, Dealogic, Dimon Jp Morgan, Goldman Profits, Lucas Van Praag, Goldman Blankfein, Jp Morgan Chase, Goldman Sachs Bonuses, Economics, Citigroup, Lloyd Blankfein, Jamie Dimon, Business, Goldman Sachs, Wall Street (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: hockeydog
Charlie says, "But the biggest piece of evidence I have that Goldman knows its once-dominant client franchise is in trouble is that the firm is talking." Well, that is about the only truthful statement in the article. As has become Charlie's modus operandi, he speculates about flak. Flak, as we all know, is the stuff tossed hither and yon with the idea of deflecting radar. Since most everything Goldman does, and has done is underneath the radar, and since Charlie is like a Goldman scud missle, very little of what he offers in this essay has any kind of ring of truth to it. If anything, this essay would appear to be paving the way into a Treasury or Fed job for Jamie Dimon. The more things change, the more - truly - they stay the same.
Yes, this whole article is just damage control for Goldman Sachs. Like there is some kind of poetic justice taking the place of actual justice.
Maybe Goldman is becoming small enough to let it fail next time. About time.
Goldman has been extraordinarly lucky. Sooner or later, luck always runs out. George Patton
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