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Goldman Sachs: Finding extra margin in ECM

The new criticism of Goldman is that it is too narrow a franchise, not that it trades against its clients. Monoline is the new proprietary. “Goldman had a great year in equities but it wasn’t an equities year,” says the head of commercial and investment banking at a large universal bank.

Wasn’t it? True the economics of secondary equity trading show that it’s tough to make money even in booming markets. But the stability in credit markets provided by central banks from the middle of 2012 and month after month of positive inflows into equity funds as investors worried about over-bought, low-yielding government bonds have been a boon to equity capital markets. A narrow franchise can be a good thing if it’s a strong franchise that’s well coordinated across regions.

"We have seen an increasing concentration of assets under management on the buy side," points out Alasdair Warren, head of European ECM at Goldman Sachs. "Globally, there are around 1,300 institutions that invest in European equities, but of these the 50 largest control around 50% of the AUM, and many of these are US-based global funds. With Europe looking ‘investable’ again and all manner of long-only and hedge fund investors looking to reweight into equities and out of money markets and bonds, the quantum of demand has been outstripping supply, creating a very positive dynamic in the primary equity market."

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From a low point of just $200 billion raised in the second half of 2011, global equity capital market volume has been increasing in every subsequent six-month period.

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