Goldman Sachs has retained its clients and is becoming the last
big pure investment bank, making it likely to have an advantage over
the banking conglomerates.
It was not long ago that Goldman Sachs was painted as an outsize
villain of the financial crisis, and its future seemed hazy. Today,
however, the investment bank has retained its clients and its
dominance. And recent missteps by its competitors are putting it in
pole position to profit when a recovery comes.
It is not here yet. The investment banking business is in a
miserable state. According to the research firm Dealogic, worldwide
revenue for the investment banking industry was down 26 percent in
the first half of 2012 from the same period a year ago.
Goldman, too, is suffering in this downturn, but it has held its
investment banking pre-eminence. In the first half of 2012,
according to Dealogic, Goldman Sachs ranked third among banks in
domestic and global equity capital markets. In the league tables for
global advice on mergers and acquisitions, Goldman was No. 1
worldwide and in the United States.
Over all, according to Dealogic, the firm had $1.7 billion in
investment banking revenue for the first half of 2012 and was third
in the global rankings. That is a feat, as the firm does not have
the lending capability of JPMorgan Chase, which is No. 1 in the
global rankings, or Bank of America Merrill Lynch, No. 2.
As for sales and trading, traditionally the heart of the banks'
revenue, Goldman's institutional client services segment had $9.6
billion in net revenue in the first half of this year -- down about
5 percent from the previous year. But compare that with Morgan
Stanley, where sales and trading revenue was $4.4 billion, down more
than 32 percent.
The numbers show that despite contentions that Goldman had traded
against its clients by betting on a collapse in the housing market,
clients have not fled. And some of Goldman's competitors have
changed or made missteps in ways that will help the bank.
JPMorgan, for one, has been hurt by the billions in trading
losses out of its chief investment office. The bank's chief
executive, Jamie Dimon, has to confront the likelihood of
significantly increased oversight from regulators.
Another big competitor, Barclays, has been bogged down by a
scandal over manipulation of interest rates that forced an upheaval
in its executive ranks. It, too, will face increased regulatory
oversight, not to mention litigation.
Citigroup is sorting out whether it wants to be a consumer bank
or an investment bank or something in between as it tries to achieve
a turnaround. But the bank clearly no longer has aspirations to be
the global supermarket that its former chief executive, Sanford I.
Weill, hoped for it to be. Where Citigroup's investment banking
division fits in that puzzle is still unknown, probably even to the
bank's executives.
The vision in the late 1990s was that a bank could offer both
commercial and investment banking services and that it could
leverage its ability to lend billions of dollars to gain investment
banking business. The recent troubles of the big banks suggest that
that dream is over.
Any benefits from being both a commercial lender and an
investment bank are outweighed by huge regulatory hurdles. The army
of compliance officers required to oversee the operations of those
