As the world convulses and the 20 year bull-market in bonds shows signs of wearing thin, which type of employee is Goldman Sachs most partial to? Is it the macro traders who help clients navigate the upheavals in the economic landscape? Not necessarily. Is it the technologists who will help automate the pitch books and the product control processes that sap human endeavour? Maybe not.
It's the client relations people.
During a presentation today at the Bank of America Merrill Lynch Future of Financials Conference, Goldman CFO Harvey Schwartz said being up close and personal with clients is key to Goldman's competitive advantage in the post-Trump-election world.
"The thing we bring to this kind of cycle is the commitment to the client," said Schwartz. "The client connectivity feels super strong."
Whether this client connectivity will generate revenues is another issue. Long before he became CFO, Schwartz was a member of Goldman's American financing group within its investment banking division. During this time, he said he encountered a banker who was executing a transaction. "I asked him how long he'd been working on that transaction and he said I had my first conversation about it seven years ago," Schwartz recalled.
In this kind of uncertain market environment, Schwartz said Goldman's advantage is all about its willingness to provide long term advice rather than pushing for a quick win. "Being close to the client, staying in touch with the boardroom is what differentiates us. Success is being the most valued advisor." It's not about doing deals or transacting all the time, said Schwartz: it's about being the place clients turn to when they are making important decisions.
Schwartz's description of Goldman's elongated time horizons is reminiscent of Lars Andersson, the Morgan Stanley M&A banker who reportedly spent ten years advising Monsanto for no money at all before being rewarded with a $120m fee.
Goldman's willingness to carry swathes of client-focused people who don't necessarily make money on a daily, monthly, or even yearly basis, is good news for its M&A bankers, who might struggle to close deals in the electoral fug. While HSBC is busy monitoring exactly how its senior M&A bankers spend their time, Goldman's message seems to be that its client-facing staff can go slow as long as they build relationships. In this model, days spent shooting or playing golf with clients are par for the course.
Of course, it also means that the other parts of Goldman which are generating revenues in the short term will need to step up and pay for all those schmoozers. Fixed income traders are first in line. Schwartz said Goldman experienced a "big uptick" in trading activity after the election and Bank of America revealed today that it had the biggest ever day by volume after Trump's victory. It's too early to say whether this will endure, said Schwartz.
Longer term, Goldman's new retail bank ('Marcus') might be a lot more important. Also speaking at today's presentation, Harit Talwar, the head of Marcus, says expects the business to generate returns in the "high teens" once it gets going. There's no launch date as yet, however (Goldman doesn't want to rush things, says Talwar) and in a vote, a majority of the audience thought Marcus will be too small to make much difference.
Schwartz also said that Goldman still has no plans about its EU presence post Brexit and that any reports to the contrary are wrong. In other words, Goldman hasn't definitively opted for Frankfurt after all.