Awards for Excellence 2020
Goldman Sachs’s first ever investor day in January 2020 might have left more questions than answers around the firm’s forays into the brave new worlds of consumer and transaction banking. But one thing was unshakeable – its investment bank franchise. This year it is our choice as the US’s best investment bank.
Revenues across investment banking and markets rose 27% year on year in the first quarter of 2020, and were up 12% on a 12-month basis, the best among the US firms. Pre-tax profits were up 36% and 7%, respectively.
Goldman’s fixed income trading business – a laggard in recent years – was up 30% in the last 12 months compared to the previous 12-month period, among the best performances in the sector, and equities was up 12%.
The firm’s dominance in advisory is long-standing and seemingly unthreatened. For the period under review, it had almost half the market of announced M&A transactions and 40% of completed.
The list is long, but highlights were advising Willis Towers Watson on its proposed merger with Aon and Total System Services’ completed merger with Global Payments.
In equity capital markets the bank managed to increase its lead over rivals, notching up a 14.1% market share for the period under review. In DCM it is selective, dipping in and out of the top five rankings, but continues to notch up landmark trades in both high yield and investment grade – often allied to acquisitions.
David Ludwig, head of Americas ECM, sums up the bank’s philosophy when it comes to his business: “We succeed by driving volume, wallet share and franchise value. That only happens when we are leading the most transactions, especially the most important ones, and also being nimble and innovative as the markets continue to be dynamic.”
If those are the expectations, the bank is meeting them in ECM. In the pre-Covid period, its market share was comfortably higher than all others. And that persisted through the early part of the crisis. Some at the bank had worried that at a time when corporates would be knocking on the doors of the big lenders, it might see less of the action. That didn’t happen.
Goldman was certainly present on high-profile deals in 2019 like Uber and Petrobras.
But more impressive were trades such as Avantor, an IPO that priced a week after Uber had disappointed investors and was hard to get done. The bank moved nimbly to add a mandatory convertible bond – and ended up being able to upsize the common.
And in November the bank did the largest sole block trade, a $3.1 billion sale of stock in Axa Equitable, showcasing its risk-management credentials.
Susie Scher reckons that key to the investment bank’s success is the way in which it operates with a truly integrated global financing group, which is the division that she co-heads.
It comprises DCM, ECM and structured finance, was created in 2004 by former chief executive Lloyd Blankfein and the first person to run it was David Solomon, the current Goldman chief executive.
At that investor day in January there was scarcely an executive who could get through their presentation without lingering on the concept of ‘One GS’, an initiative that is intended to push Goldman’s bankers to ensure that every possible relationship with a client is being explored.
But many parts of the investment bank are arguably already there.
“You could say that One GS grew out of One IBD,” says Scher.
Is there one area that has driven the development of the bank from a preeminent advisory shop to something much more full service?
“The investment grade debt side has been so transformative,” says Scher. “I started at Goldman in 1997, and we were really not an IG house at all. Some clients I used to cover at Salomon Brothers before said they didn’t think of Goldman as a bond house.”
The firm came to realize that if it wanted to build a franchise, it would have to support it with lending. That effort started in 2003 and, 17 years later, Goldman is able to be not just the investment grade bond house of large corporates but often also their capital structure adviser.
It still helps to marry all that to the firm’s acquisition business, of course. That issuers will trust the bank with critical financings at critical times was shown no more clearly than by Goldman’s active bookrunner role on the $19 billion bond for T-Mobile, which came at the very start of April 2020 and was the second-biggest corporate bond of the year.
The deal was to finance T-Mobile’s acquisition of Sprint that had closed a few days earlier.
Another deal is perhaps even more illustrative of how Goldman’s business has evolved. In July 2019, the bank underwrote the $12 billion bridge finance backing the merger of Mylan with Upjohn, the off-patent drug business of Pfizer.
Goldman was advising Pfizer, but the bridge was Mylan’s, making it the first investment grade bridge to be led on a sole basis by the adviser to the parent of the business being spun off.