The core skills of investment banking – marrying up the capital needs of financially stretched issuers and the investment objectives of those with cash still to put to work even after wrenching portfolio losses – have never been more valuable.
So it should not come as a shock or provoke resentment that Goldman Sachs, still the world’s pre-eminent investment bank, pulled in record quarterly equity underwriting revenues between April and June. With banks still reluctant to lend, corporations and financial institutions need to repair their over-leveraged balance sheets and raise funds. Those capital markets intermediaries that help this to happen are doing a better job for the global economy than the still-reeling banks.
So we should be pleased by Goldman’s profits. They are evidence that the capital markets are doing their job at a vital moment for the economy.
But Goldman’s senior management and employees and all who work in the industry would do well to reflect right now, while earnings pour in, on how close even the strongest firms came to disaster.
Goldman Sachs only survived to make these profits because the US authorities bent their own rules to pretend it was a bank, which it clearly isn’t, allowed it wider access to credit at the Fed discount window and injected billions of dollars-worth of capital in the form of preferred stock.