Felix Salmon

Goldman presses the flesh

By Felix Salmon
June 23, 2010

Goldman Sachs was historically a bit like Bernie Madoff: both of them were successful partly because they were very good at playing hard to get. They both had sterling reputations, and both of them were wrapped in a certain amount of mystery.

Things are different now, and as Matt Goldstein and Steve Eder report, Goldman is opening itself up to clients in an unprecedented manner, in the wake of the SEC suit against it. In equity underwriting the firm is taking deals which it would have formerly rejected for being two small — its three post-lawsuit IPOs have averaged just $189 million a piece. And the prime-brokerage operation is also showing more hustle:

Another hedge fund that a year ago turned down Goldman for a prime brokerage assignment was recently contacted again by the Wall Street firm to see if it would reconsider. A person close to the hedge fund, who declined to be identified, said the incident was surprising since Goldman rarely comes back begging for business.

Since the SEC announced its charges, Blankfein and Cohn also have participated in conference calls with wealthy clients, reassuring them about the direction of the firm. Cohn, for instance, took part in a June 16 call with Goldman’s wealth management customers.

It’s worth noting here that wealth management doesn’t play the same role within Goldman as it does at other banks, which are content to invest their clients’ money and collect fees for doing so. Goldman does that, of course. But it also specializes in pairing off its wealth-management clients with its prime-brokerage clients: introducing hedge funds to the wealthy investors they need, and giving wealthy investors access to the hedge fund investments they desire.

When this system is working smoothly, it runs itself, in a virtuous cycle: more prime-brokerage clients mean the bank is that much more attractive to high net worth individuals, and vice versa. But clearly now the bank’s executives, up to and including Lloyd Blankfein, feel that the system needs a lot of personal attention on both sides to keep it chugging along as profitably as it has been in the past.

What’s certain is that Goldman Sachs has lost its mystique and aura, as Yankees fans would put it. And the problem with trying to make up for that with high-touch personal service is twofold. Firstly, it takes up a lot of executives’ time, and it doesn’t scale. Secondly, the more time that executives spend with clients, the less valued and valuable that time becomes. This is a tactic which can only work once: after that, Goldman’s clients are going to be fully aware that its executives are only human, and that face-time with them is not particularly valuable or reassuring. So Goldman is definitely going to want to get its mystique back. And it’s going to be sorely disappointed on that front.

3 comments so far | RSS Comments RSS

I am not sure I agree with your take that Goldman is trying to ‘hustle’ its way back into the hearts of its clients.

Is it really so unbelievable that Goldman is trying to restock their proverbial pond with small fish? Many marginal clients undoubtedly departed following the revelations about Goldman’s bias in favor of its ‘smart money’ clients; wouldn’t it make sense for Goldman to look for new marginal clients who can be used as unsophisticated counterparties in future complex deals that GS structures for the benefit of its pet clients?

Posted by BradleyO1984 | Report as abusive

One of the sources for the graph here

http://www.brownsavano.com/LinkClick.asp x?fileticket=gAzpCGg2brU%3D&tabid=245

…is NVCA/Thomson Reuters. Do they have 2010 data? A list of who the underwriters are?

Posted by Uncle_Billy | Report as abusive

Goldman only has a certain amount of capacity. If Goldman is asking the smaller fish for business, they must be hurting a bit.

Posted by dantes1807 | Report as abusive

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