Goldman partners to defy critics
Sunday 14 March 1999
"Goldman is not going to back away from the importance of its trading business even though its competitors are saying the firm's focus on trading makes earnings volatile," said a source. "They plan to use the money raised to grow their M&A and fund management businesses even faster. [That growth] should stabilise earnings."
Goldman will also announce results for its first fiscal year quarter and is expected to report pre-tax profits above $1bn. This would be a rebound from its worst quarter since 1994, when the hits it took in last year's financial crisis forced it to withdraw its original plan for an initial public offering of shares last autumn.
Analysts expect Goldman's shares to be valued in line with competitors Morgan Stanley Dean Witter and Merrill Lynch (trading at slightly over three times book value) giving Goldman - with equity of $6.3bn - a value of $20-$24bn, substantially lower than the $30bn before Russia's default and the hedge fund LTCM's collapse last year.
"I think their IPO will go smoothly. I think it will come fast. The irony is that, after all the turbulence, they're still going to get a very good price," said a competitor.
The firm is expected to begin promoting its shares in April and come to market in May. Investors will be looking for a breakdown of the firm's profits on Tuesday, and will compare trading and M&A profits against those of Morgan Stanley.
In contrast to Goldman, whose profits plunged 81 per cent in the three months between September and November 1998, Morgan Stanley reported a rise in profits in the fourth quarter of 1998 of 51 per cent.
Investors will also be assessing the effect on Goldman's culture of its transition from being a private partnership for 130 years to a corporation. The firm last week appointed partner David Vinear its chief financial officer.
On Thursday it announced that Morgan Stanley investor relations chief John Andrews was to be its first investor relations director.
"The corporate structure is likely to make the firm slightly sounder," said Robin Monro-Davies, managing director of the credit rating agency IBCA.
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