Outlook: Goldman Sachs

CONDITIONS in investment banking could hardly be worse right now, but every cloud, as they say, has a silver lining. For many in the City and on Wall Street it is the evident discomfort of Goldman Sachs over the timing of its stock-market float which, given the crisis in financial markets and the precipitous fall in banking shares, could hardly be more unfortunate. Goldman Sachs makes a king's ransom every week by advising on precisely this sort of thing; that it should slip up so badly on the timing of its own float is an eventuality laced with comic irony.

In theory, the present bear market shouldn't matter too much as only 10 per cent of Goldman Sachs is being floated initially, with the rest locked in for up to five years. That might seem bad enough for the vendors - a stake that a couple of months back would have fetched $3bn is now worth just half that - but given that the great bulk of the equity won't be traded and that Jon Corzine, co-chairman, has said until he's blue in the face that the float isn't about money, it ought not to scupper the planned listing altogether.

Unfortunately, market chaos is also undermining the stated purpose of the float, which as you can imagine purports to be a higher one than that of enriching the partners.

One of these purposes is to achieve a more efficient and less costly capital structure. Since the cost of servicing banking equity has doubled since the early summer, it is not apparent that this argument still holds true. The other stated purpose was to enable Goldman to use its capital to do deals and take advantage of global consolidation in financial services. Again, turmoil in financial markets is bringing the process of globalisation and consolidation to a grinding halt.

Maybe Goldman's traditional partnership structure is more suited to the lean years ahead than publicly-quoted status. Mr Corzine's flotation plans were vociferously opposed by a not insignificant minority of partners. If market conditions continue as they are, their voices will be heard once more, especially if third-quarter performance was as bad as some rivals say.

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