Goldman Sachs Group Inc (GS.N) is betting it can get its money-making mojo back by pitching creative deals to big, complex clients, marking a return to its investment banking roots as trading revenue slows.
The Wall Street bank is forming a group, known internally as the Innovation Lab, focused on generating compelling deal ideas for companies like Warren Buffett’s conglomerate Berkshire Hathaway Inc (BRKa.N) or Japan’s SoftBank Group Corp’s (9984.T) $93 billion investment fund, people familiar with the matter said.
The new “brain trust,” as one insider called it, is aimed at supercharging investment banking revenue as trading, for many years Goldman’s profit engine, has faltered amid regulations and market trends that hurt the bank more than rivals.
From 2009-2016, Goldman’s annual trading revenue fell by more than $18 billion, or 32 percent, while investment banking revenue rose by $1.3 billion, or 26 percent. That trend has accelerated this year.
Analysts expect Goldman to reveal more trading pain when it reports third-quarter results on Tuesday, building on two consecutive quarters of declines.
After facing angry questions from shareholders, Goldman last month unveiled a plan to boost annual revenue by $5 billion.
Management has emphasized Goldman’s roots as a strategic adviser to corporations, wealthy families and investment funds, and has also expanded into areas like consumer lending.
But while fees from those services can be more reliable than trading, analysts say Goldman will not replace the income from its stock and bond market heyday any time soon.
“Many investors still view it as a ‘show me’ story because the initiatives are in businesses that are highly competitive,” said Steven Chubak, a banking analyst with Instinet.
A Goldman spokeswoman declined to comment on the new group.
Led by Goldman dealmakers Brian DeCenzo and James Morris, the group will perform a different role than traditional bankers focused broadly on pitching mergers and acquisitions to big companies, the people familiar with the matter said, asking not to be named because they are not authorized to speak to the media.
The group is expected to come up with out-of-the box ideas and focus on clients who want to acquire or make big investments in businesses across industries, and do not fit neatly into individual categories, like technology or industrials, that sector bankers already cover.
Berkshire owns more than 90 businesses across aerospace, energy industrials, financials, transportation, consumer products and food. Meanwhile, SoftBank’s Vision Fund has invested in companies ranging from satellite startup OneWeb to asset manager Fortress Investment Group LLC (FIG.N).
On top of spotting deal opportunities, the new team will analyze broad trends like the impact of oil prices across various sectors.
DeCenzo and Morris were previously part of Goldman’s financial sponsors group, which scouts deals for private equity firms.
The group is the latest change under new management of the investment bank, which earlier this year elevated Gregg Lemkau and Marc Nachmann as co-heads alongside John Waldron.
Under their leadership, the business has added bankers to cities like Atlanta and Dallas to serve local clients more closely, and hired dealmakers at the partner level from Wall Street rivals. They have also installed programmers alongside dealmakers to increase productivity and give clients better advice.
Photo: A view of the Goldman Sachs stall on the floor of the New York Stock Exchange, July 16, 2013. Reuters/Brendan McDermid