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Best investment bank: Goldman Sachs |
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Also shortlisted: BAML, Deutsche Bank and HSBC |
The broker-dealer model is dead! Long live the universal banking model!
That’s the cry going up from most corners of the global investment banking industry today. And a look at Euromoney’s shortlist for the award this year would suggest it rings true.
Revenues and market shares at the biggest universal banks are on the march. Deutsche Bank has reduced its costs and risk-weighted assets, and gained market share. Bank of America Merrill Lynch is leveraging its scale and balance sheet not just in its US heartlands, but also in Europe and Latin America. HSBC is expanding its client base and core capabilities, and is a force to be reckoned with wherever it competes.
Two firms that could easily have been on the shortlist, JPMorgan and Citi, are formidable competitors across both flow and event businesses.
But there is usually an exception. And whichever way you choose to look at it, Goldman Sachs has had an exceptional year.
Exceptional not just because its model has been written off, but because it has apparently overcome a campaign against its reputation in the industry and even in broader society that would have finished off firms that were not as strong.
Exceptional because despite all the noise, it remains the intermediary and adviser of choice for so many of the world’s biggest companies, and it is still the business that all the other firms mentioned above concede remains their most formidable competitor.
Look at any market you choose and Goldman competes; often, it wins.
Goldman has certainly been a big winner in the M&A markets over the past year. This remains its most important, high-profile franchise. Over that period, it advised on $726 billion of completed transactions, with a 29% market share. It advised on most of the important deals in terms of size, sometimes on behalf of the acquirer, sometimes for the target, and in every geography, sector and jurisdiction.
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| Lloyd Blankfein: control, not command |
Stand-out transactions included advising Walgreen on its acquisition of Alliance Boots; TNK-BP on its takeover by Rosneft; and Virgin Media on its sale to Liberty Media – all of them $20 billion-plus deals. It took a lead role in complex restructurings, such as Abbott Laboratories’ $66 billion spin-off of AbbVie. And it remained active in the going-private and private equity markets, advising such companies as Cequel Communications and Terra Firma.
Goldman had a banner year in equities. It still has the broadest ECM franchise globally. It remains the bookrunner of choice for innovative and complex deals, such as the multi-billion-dollar accelerated bookbuilt offerings for AIA, AIG and Eads. Its ability to pull in the most important deals from the emerging markets remains unrivalled, with the past 12 months including landmark IPOs for such companies as Astro Malaysia Holdings, People’s Insurance Company of China and Santander México. In the first five months of 2013, Goldman was the top-ranked bookrunner in all three main regions.
If a leading position in the flow business will soon become the sole property of the global universal banks, then no one has told Goldman Sachs. So far, the lack of a balance sheet does not seem to be impeding the firm. In FICC, its revenues remain clearly in the top five on the Street, while its cash equities business is the number one globally, with best-in-class liquid execution and electronic trading platforms.
One of the jibes against Goldman has been its lack of presence in the debt markets. That’s misleading: it has always been a player in leveraged finance, and has continued to print excellent business in high-yield debt and leveraged loans.
But Goldman has substantially improved its showing in the core of the debt capital markets, just as DCM becomes a more important slice of the global investment banking pie. Over the past 12 months it ranked in the top five for global investment-grade debt, helped in no small part by its role as bookrunner on Apple’s $17 billion bond debut, the largest investment-grade corporate financing in history. It has also taken a lead role in the bank/insurance debt issuance market, with stand-out deals such as BBVA’s $1.5 billion CoCo, the first CRD IV and Basle III-compliant tier 1 financing.
And if you could point the finger at what makes Goldman stand out, it is this ability to adapt quickly to changes in the markets. Some rivals say it shows a lack of commitment to those markets and thereby its clients.
Rather, it marks out Lloyd Blankfein and his colleagues at the firm as smart business people, as well as talented bankers. The long-reaching soul-searching of a strategic review is not for Goldman. It has always reallocated resources and assets as the markets change. It empowers the people who run its divisions to do so. Blankfein calls it control, but not command.
For all the talk of models, they know that this is the model that works best for Goldman Sachs.
