In Effort To Boost Deals Business, Goldman Creates ‘Brain Trust’

Marking a return to its investment banking roots as trading revenue slows, and by pitching creative deals to big, complex clients, Goldman Sachs Group Inc is betting it can get its money-making mojo back.

Media reports quoting sources said that focused on generating compelling deal ideas for companies like Warren Buffett’s conglomerate Berkshire Hathaway Inc or Japan’s SoftBank Group Corp’s $93 billion investment fund, the Wall Street bank is forming a group, known internally as the Innovation Lab.

As trading, for many years Goldman’s profit engine, has faltered amid regulations and market trends that hurt the bank more than rivals, supercharging investment banking revenue is the aim of the new “brain trust,” as one insider called it.

While investment banking revenue rose by $1.3 billion, or 26 percent, Goldman’s annual trading revenue fell by more than $18 billion, or 32 percent, between 2009 and 2016. That trend has accelerated this year.

Building on two consecutive quarters of declines, when it reports third-quarter results, analysts expect Goldman to reveal more trading pain.

Goldman last month unveiled a plan to boost annual revenue by $5 billion after facing angry questions from shareholders.

Management has also expanded into areas like consumer lending and has emphasized Goldman’s roots as a strategic adviser to corporations, wealthy families and investment funds.

But analysts say Goldman will not replace the income from its stock and bond market heyday any time soon even while fees from those services can be more reliable than trading.

“Many investors still view it as a ‘show me’ story because the initiatives are in businesses that are highly competitive,” said Steven Chubak, a banking analyst with Instinet.

A Goldman spokeswoman declined to comment on the new group.

Focused broadly on pitching mergers and acquisitions to big companies, the group will perform a different role than traditional bankers and would be led by Goldman dealmakers Brian DeCenzo and James Morris, sources told the media.

Focusing on clients who do not fit neatly into individual categories, like technology or industrials, that sector bankers already cover, the group is expected to come up with out-of-the box ideas and focus on clients who want to acquire or make big investments in businesses across industries.

More than 90 businesses across aerospace, energy industrials, financials, transportation, consumer products and food is owned by Berkshire. Meanwhile companies ranging from satellite startup OneWeb to asset manager Fortress Investment Group LLCv have bene the target of investments by SoftBank’s Vision Fund.

Broad trends like the impact of oil prices across various sectors would be analyzed by the new team in addition to spotting deal opportunities.

The new management of the investment bank earlier this year elevated Gregg Lemkau and Marc Nachmann as co-heads alongside John Waldronv and the group is the latest change under new management.

Hiring dealmakers at the partner level from Wall Street rivals, bankers have been added by the business to cities like Atlanta and Dallas to serve local clients more closely under their leadership. In order to increase productivity and give clients better advice, they have also installed programmers alongside dealmakers

(Adapted from Reuters)


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