Wall Street, Goldman Sachs And China - Forbes
1973 Wall
Street firms offered financial advisory services to governments,
companies and individuals, and only in a few instances, traded
securities for their own account. Some firms didn’t even underwrite the
securities of their clients, and the thought of establishing a trading
position that might be contrary to the interest of a client never
entered anyone’s mind.
Investment bankers were akin to corporate doctors, whose job it was to advise CEOs on capital raising and the occasional acquisition, which was always a friendly deal that was negotiated by the investment bankers and the leaders of the two companies. In the Wall Street of the 1970s, hostile, or unwanted, takeover offers were unheard of.
Goldman Sachs stood as the epitome of teamwork. As the mergers and acquisitions business began to grow, other firms would produce celebrity-like “M&A Stars,” but at Goldman, the emphasis was always on the team — and the client. Even as M&A became the biggest profit center for any firm, Goldman was one of the last to have a stated policy of not representing any company in the hostile takeover of another company, foregoing tens of millions of dollars in fees in the process.
Wall Street began to be a very big business in the 1980s, and all firms, including Goldman Sachs, began to change as a result.
Although the Glass-Steagall Act of 1933 limited securities activities by commercial banks, the banks were anxious to get into the securities business and began to encroach on turf once reserved for their investment-banking brethren.
Unfortunately for the firm, though, the publication of the New York Times editorial last week by Greg Smith, the executive director and head of Goldman’s United States equity derivatives business in Europe, the Middle East and Africa, singled Goldman out as the poster child for an industry that has lost credibility everywhere, including in China.
In the 1990s and into this century, government officials and the heads of China’s big state-owned companies began to be courted by all of the large Wall Street firms, hoping to secure mandates for lucrative initial public offerings and equity deals.
In many cases, the sons and daughters of top Chinese officials went off to Harvard and Yale, and came back to China as new business representatives for the leading firms. By 2008, senior Chinese executives and government officials were very familiar with the workings of the capital markets.
There is no doubt that the global financial crisis of 2008 tarnished the reputations of all of Wall Street’s leading players in every part of the world, and this was certainly the case in China.
In 2010, Li Delin, a Chinese financial journalist who is well-known for his outspoken writings, published a sensationalist bestseller in China, the “Goldman Sachs Conspiracy,” in which Delin argued that Goldman’s ultimate goal is to “kill China.” “Like a fox chewing a bone, Goldman Sachs knows the rules of the game and when to go for your neck,” he says in his book.
The controversy surrounding Mr. Smith’s editorial has received widespread attention in China. Last Friday, a morning financial news show on national radio reported on Smith’s editorial and interviewed Mr. Li. Needless to say, the comments and the opinions expressed in the press have been universally negative.
China’s capital markets are now where the U.S. capital markets were in the late 1970s/early 1980s, and merger and acquisition and financing activities are about to explode in the years ahead. As is the case for most products and services, China is likely to become one of the largest markets for investment banking services over the next 10 years.
..........................................
Can a company like Goldman Sachs change its corporate culture to suit the Chinese or will the Chinese business people actually learn from the culture of greed and do business in the Goldman style?
The financial atrocities that have been reported in newspapers like the New York Times, make the man on the street wonder why no executive from these companies was prosecuted and sent to jail.
Given that there is no legal consequence for apparent crimes against the American public, why would banking executives change their mode of operation?
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Investment bankers were akin to corporate doctors, whose job it was to advise CEOs on capital raising and the occasional acquisition, which was always a friendly deal that was negotiated by the investment bankers and the leaders of the two companies. In the Wall Street of the 1970s, hostile, or unwanted, takeover offers were unheard of.
Goldman Sachs stood as the epitome of teamwork. As the mergers and acquisitions business began to grow, other firms would produce celebrity-like “M&A Stars,” but at Goldman, the emphasis was always on the team — and the client. Even as M&A became the biggest profit center for any firm, Goldman was one of the last to have a stated policy of not representing any company in the hostile takeover of another company, foregoing tens of millions of dollars in fees in the process.
Wall Street began to be a very big business in the 1980s, and all firms, including Goldman Sachs, began to change as a result.
Although the Glass-Steagall Act of 1933 limited securities activities by commercial banks, the banks were anxious to get into the securities business and began to encroach on turf once reserved for their investment-banking brethren.
The repeal of Glass-Steagall in 1999 irrevocably changed the
Street. To secure profitable M&A and underwriting business, it
was now necessary to have a big balance sheet. With an ability to
leverage its capital, it didn’t take long for all firms to recognize
that proprietary trading — trading for one’s own account — could be
the most lucrative business of all.
Unfortunately for the firm, though, the publication of the New York Times editorial last week by Greg Smith, the executive director and head of Goldman’s United States equity derivatives business in Europe, the Middle East and Africa, singled Goldman out as the poster child for an industry that has lost credibility everywhere, including in China.
In the 1990s and into this century, government officials and the heads of China’s big state-owned companies began to be courted by all of the large Wall Street firms, hoping to secure mandates for lucrative initial public offerings and equity deals.
In many cases, the sons and daughters of top Chinese officials went off to Harvard and Yale, and came back to China as new business representatives for the leading firms. By 2008, senior Chinese executives and government officials were very familiar with the workings of the capital markets.
There is no doubt that the global financial crisis of 2008 tarnished the reputations of all of Wall Street’s leading players in every part of the world, and this was certainly the case in China.
In 2010, Li Delin, a Chinese financial journalist who is well-known for his outspoken writings, published a sensationalist bestseller in China, the “Goldman Sachs Conspiracy,” in which Delin argued that Goldman’s ultimate goal is to “kill China.” “Like a fox chewing a bone, Goldman Sachs knows the rules of the game and when to go for your neck,” he says in his book.
The controversy surrounding Mr. Smith’s editorial has received widespread attention in China. Last Friday, a morning financial news show on national radio reported on Smith’s editorial and interviewed Mr. Li. Needless to say, the comments and the opinions expressed in the press have been universally negative.
China’s capital markets are now where the U.S. capital markets were in the late 1970s/early 1980s, and merger and acquisition and financing activities are about to explode in the years ahead. As is the case for most products and services, China is likely to become one of the largest markets for investment banking services over the next 10 years.
The Chinese government and Chinese companies will turn
for advice to firms that they trust, and will favor those that respect
the client relationship. Firms that can get back to the core values
that permeated Wall Street in that earlier period will have the best
chances for success here, and will be in the best position to
capitalize on this next big trend.
..........................................
Can a company like Goldman Sachs change its corporate culture to suit the Chinese or will the Chinese business people actually learn from the culture of greed and do business in the Goldman style?
The financial atrocities that have been reported in newspapers like the New York Times, make the man on the street wonder why no executive from these companies was prosecuted and sent to jail.
Given that there is no legal consequence for apparent crimes against the American public, why would banking executives change their mode of operation?
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