Outlook: Getting it right second time around
Thursday 04 March 1999
But as those who are involved in the IPO are keen to stress, this is not about trying to hit the top of the market. If there's a stock market correction similar to the one that sank the float last time round, so be it. The float will still go ahead anyway. Only Armageddon will derail it this time round.
So what's changed? Most Goldman Sachs partners have become united in their belief that the way forward for the firm is through a public flotation - that if they remain a partnership they'll eventually become uncompetitive. Never mind the way it will enrich working and retired partners, flotation brings four basic advantages.
The first is that it solidifies the capital structure and makes it immune to the process of erosion that occurs in a partnership. Second, it allows the firm to cascade ownership rights through all employees, rather than confining them to a narrow group of partners. This brings a third, related advantage. It allows Goldman to pay its staff in shares.
Most American and European investment banks pay some proportion of staff remuneration in shares. If this path is blocked, as it is at Goldman Sachs, then the money has to be made up in other ways - mainly cash. In a high- earning people business like investment banking, this in turn can make the cost base uncompetitive. Fourth, and possibly most important, Goldman reckons it needs a currency with which to compete in the acquisition market.
All these rationales were true first time round, of course, but many partners appeared less convinced of them then. As a consequence they needed to be assured of the value of the float with the promise of real money - that their shareholdings would be worth a certain minimum amount as a result of the IPO. As the market plunged, it became impossible to deliver on those promises.
Goldman does not intend to repeat these mistakes. This time round, there will be no such guarantees. Partners are being asked to accept that the shares will be worth whatever the market values them at. This may seem a somewhat arcane difference, but it is none the less an important one, because it indicates that the firm is much more wholeheartedly behind the idea of a float than it was when the first attempt was made.
Even so, this is a big leap for Goldman Sachs, as indeed it is for equity markets. It's been a boom year for deals, so fee income accounts for a big chunk of earnings right now. None the less, profit from proprietary trading still dominates. It will be interesting to see what ordinary investors make of the flotation of what is, in effect, the world's largest hedge fund.
- 1 What happens to your body when you give up sugar?
- 2 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 3 Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
- 4 Penis size: Study revealing 'what's normal' sends international media into meltdown
- 5 Have sex with your iPad thanks to the new sex toy no-one asked for
Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
Ayesha Ali death: Mother and her girlfriend found guilty of manslaughter of eight-year-old
George Clooney and Amal fail to get special treatment at New York restaurant
Cindy Crawford 'un-PhotoShopped' viral Marie Claire image was doctored, claims photographer
'A girl is more responsible for rape than a boy': The statement that shocked the world... except India
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...