Some clients eschewed Goldman for the likes of Morgan Stanley. And when Goldman reached out, they resisted. That was despite Goldman showcasing a technology overhaul and spending billions to catch up with the investments that Morgan Stanley had already made.
“What I found surprising was that they weren’t hugging us on the first day,” Waldron said of the universe of quant firms. “Most times when we offer to do something for clients they say yes right away, but with the systematic clients it was more of a heavy lift.”
Financing Fervor
Banks typically break up their stock-trading business into two key components. There’s the business of intermediation, where they sit in the middle, buying and selling shares or their derivatives. And then there’s prime brokerage, where they can lend securities or offer leverage to market participants eager to multiply their returns when bets go right.
Goldman has seen improvement in both areas.
Its franchise benefited across the board as the pandemic set off waves of trading in recent years, first as prices whipsawed, and then as investors reacted to central bank maneuvers to fight inflation.
But another, more deliberate change has helped boost Goldman’s fortunes. The bank aggressively courted scores of big buy-side firms after recognizing that it wasn’t just underperforming with quants.
Each year, money-management giants such as Citadel, Millennium Management and BlackRock Inc. pay billions of dollars in combined fees to sell-side banks. Yet Goldman wasn’t even in the top-three institutions in reaping that business.
“Those of us that were there at the time have to collectively own that we were not punching at our appropriate weight class,” said Ashok Varadhan, who has helped lead Goldman’s trading business since 2014. He declined to discuss the firm’s progress with specific clients.
Crop
Goldman executives pursued a strategy of improving the bank’s standing with its top 100 clients. Their mission was to cozy up to the biggest firms by providing a widening array of improved services. Those clients could, in turn, reward Goldman’s desks with increased business and higher prime balances.
That is paying off, according to Waldron. “We have built a reputation as being much more of a financing house.”
Waldron credits a group of senior executives in driving the revival. They include Marc Nachmann, who ran the trading business for three years; Kevin Kelly and Cyril Goddeeris, who have shepherded the financing business; and Jack Sebastian, who’s been key in driving the sales force.
It helped that some competitors, such as Deutsche Bank AG, shrank away from stock trading, and that troubled Credit Suisse collapsed into the arms of larger Swiss rival UBS Group AG last year. That left clients with a choice: concentrate even more business with the two leaders in equities financing — JPMorgan and Morgan Stanley — or keep more options open by dealing with Goldman.
Goldman has had the biggest jump in market share gains among its US banking peers relative to the last full year before the pandemic.
People across Wall Street have “Type-A personalities who want to win. That’s the way that they’ve governed themselves their whole life,” Varadhan said. So it would be disingenuous not to say “there’s been tremendous pride in reestablishing ourselves as the No. 1 equities house.”
This article was provided by Bloomberg News.