Goldman Sachs

With its excellent risk management and by remaining open for business while others close, the bank is in a league of its own.

Goldman Sachs has moved into a league of its own in global investment banking, impressing with its excellent risk management and remaining open for business while others have not.

Lloyd Blankfein puts this down to his firm’s disciplined approach to marking to market and describes the distinctive culture of a firm in which risk controllers have equivalent status, pay and influence as revenue-generating business leaders. These virtues have proved their worth through the bursting of the credit bubble.

While many rival firms have stacked up write-offs, sought new capital to repair their balance sheets, closed off risk and counterparty limits to clients and devoted more management time to internal problems than to customers, Goldman has excelled.

Its reported numbers show how the firm, once dismissed by jealous rivals as a giant hedge fund and LBO shop, has adjusted to the new market conditions and prospered by advising clients on M&A deals, underwriting debt and equity financing and making markets at a time when secondary volumes are high as leveraged and real money investors unwind and reallocate portfolios and bid-offer spreads are wide.

The firm is top ranked in global M&A adviser league tables both for completed and announced deals for the past 12 months. As well as leading on many of the big financial sponsor LBOs that limped through to completion in the past year, it has taken prominent roles in many cross-border corporate deals that have redefined global industries or reshaped the ranks of top players within them.

It advised the supervisory board of ABN Amro on the bank’s contested sale to the RBS, Santander and Fortis consortium, joining the deal when the Dutch bank’s management strongly wanted to combine with Barclays. It advised Gallaher Group on its sale to Japan Tobacco, advised GE on the sale of its plastics division to Sabic of Saudi Arabia, Hutchison Essar on the purchase by Vodafone, and Numico on its sale to Danone. It is advising Warren Buffett and Wrigley on the merger with Mars.

Goldman has noticeably increased its local coverage of emerging markets and worked on deals such as the tidying up of Arcelor’s assets in Brazil and the merger in Dubai — where it has been relocating senior staff — of Emirates Bank and National Bank of Dubai.

In developed markets, it has rekindled its reputation for raid defence advisory work in high-profile deals including Dow Jones’s pursuit by News Corp and Yahoo!’s by Microsoft.

It has been the leading arranger of equity recapitalization deals for banks seeking to repair their balance sheets in the US and Europe. It has led key deals for Washington Mutual, Wachovia, National City and UBS among many others.

It has not shied away from controversial assignments. In the UK it advised the Treasury on the nationalization of Northern Rock and it took bold steps over a single weekend to restructure the collapsing rescue rights issue for Bradford & Bingley, bringing in a private equity investor, just as it had done on the key US deal for National City that doubled that troubled bank’s equity base. The Bradford & Bingley deal is still unfolding.

Goldman has done its share of more conventional work, including the $20 billion Visa IPO.

It has done a string of record-breaking IPOs in emerging markets, including the largest ever for any European bank in the $8 billion deal for VTB of Russia; the largest ever Indian equity offering, a $5 billion follow-on for ICICI Bank; the largest ever Brazilian IPO at $3.8 billion for Bovespa; the largest ever South African equity offering at $3 billion for AngloGold Ashanti and a slew of others.

The $2.7 billion IPO of German diesel engine maker Tognum was the largest from Germany since 2001 and the fifth largest ever IPO in that country and was completed in June 2007 in competition with bidders on a potential trade sale at the top of the market.

In the debt markets, the firm was forced to sell down its backlog of leveraged loan commitments last year and this has freed it to take on fresh commitments to new deals on much better terms, such as financing Wrigley’s part in the merger with Mars. For a firm better known for its work at the dangerous edge of the credit markets, Goldman scored well in the investment-grade debt markets in the past 12 months, bringing deals that reopened the European markets for sovereign, supranational and agency issuers in September 2007 and January 2008 following bouts of uncertainty. And it has since done rare, long-duration deals for agency issuers, including the 10-year dollar global for KfW and a seven-year euro deal for European Investment Bank.