Complex situations are Goldman's bread and butter, says Andrew Barclay. Photo / Michael Craig
Complex situations are Goldman's bread and butter, says Andrew Barclay. Photo / Michael Craig
In a rare interview, Goldman Sachs' NZ boss tells Christopher Adams about getting back to its core business.
There's nothing overly extravagant about the local digs of Goldman Sachs, arguably the world's most powerful investment bank.
Sure, there's a spectacular view of the Hauraki Gulf from the firm's offices atop Auckland's Vero Centre.
There's expensive art on the walls and the decor is plush, yet understated - in no way showy. Maybe Goldman's reputation for no-holds-barred capitalist excess has led us to expect something more.
This is, after all, the company Rolling Stone called "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money".
The funnel is well and truly plugged into this country.
Goldman played a key role in many of our biggest recent market deals, including the sharemarket floats of state-owned power firms Meridian Energy, Mighty River Power and Genesis Energy.
Goldman also brokered Chinese meat processor Shanghai Maling's investment in Silver Fern Farms and is now embarking on the tricky task of finding a buyer for collapsed state-owned miner Solid Energy.
There's big money involved, especially for a firm that employs only 35 staff in this country. Goldman NZ collected $46.7 million in fees and commissions in 2013, a year of big deals including the Mighty River Power and Meridian floats. That fell to $24.4 million last year, when there were fewer high-profile deals.
Despite its influence, the firm keeps a relatively low profile here and its New Zealand head, Andrew Barclay, prefers to fly beneath the radar, rarely giving media interviews.
Today, however, he's broken cover to talk about a restructuring taking place in the Wall Street bank's New Zealand and Australian divisions.
But first things first, what does he make of the whole vampire squid thing?
"Goldman's had its issues," Barclay admits, while sipping a short black. "If you go through the litigation settlements in the US, you'll see that there are a range of them, from insider trading to market manipulation - all those sorts of things." Goldman, which posted a US$8.5 billion profit last year, isn't alone among the investment banking giants in having a long list of controversies attached to its name. These include its role in flogging the mortgage-backed securities that fuelled the global financial crisis and providing some banking wizardry that allowed Greece to mask the extent of its sovereign debt.
Plenty of conspiracy theories also stem from the many Goldman bankers who have gone on to hold senior government positions around the world. New Australian Prime Minister Malcolm Turnbull is a former Goldmanite.
Plenty of conspiracy theories also stem from the many Goldman bankers who have gone on to hold senior government positions around the world. New Australian Prime Minister Malcolm Turnbull is a former Goldmanite.
Then there are the super-sized pay packages and bonuses. The firm's compensation expenses last year were enough to pay US$373,265 to each of its 34,000 employees, says the Bloomberg news agency. Chief executive Lloyd Blankfein pocketed US$24 million in salary and bonuses in 2014.
Barclay, who began his career as a credit analyst with Westpac, says he doesn't subscribe to the view that investment banks are inherently bad.
"I don't believe they're doing anything other than trying to create returns and do the best that they can for their clients," he says. "The reality is, if you looked inside these organisations - whether it's UBS, Deutsche Bank or us - they are all doing their very best to comply with market rules and to regulate the conduct of individuals in those businesses ... and to make money at the same time."
Some individuals, often because of the way incentive schemes operate, will run afoul of the rules.
"But the challenge for us as a business is to pick that up as quickly as possible and deal with it as quickly as possible," Barclay says. "By and large - certainly in the case of our organisation - I'd give us very close to a 10 out of 10 for the work that we do." He points out that the firm quietly supports a number of philanthropic causes in New Zealand through its Goldman Sachs Foundation.
These include a clinical fellowship in oncology and a counselling programme at Finlayson Park primary school in Manurewa.
He says the company isn't interested in promoting its involvement in these causes, even if that might combat the negative perception many people have of the firm.
"We're not trying to achieve anything from it in terms of public recognition," Barclay says. "When you start playing the PR game it becomes self-absorbing."
But first and foremost, Goldman is a money-making machine and it's the quest for returns that is driving the changes taking place within the New Zealand operation.
Staff were told last month of plans to close the firm's Auckland-based securities trading operations and shift that work across the Tasman.
About 12 staff - including equity research analysts, trading and back office workers - are expected to be affected by the changes, likely to go ahead early next year.
The final number will depend on how many local Goldman employees relocate to Australia.
Unashamedly, we are an investment banking-driven firm ... Where you get into trouble is when you try to be all things to all people.
Barclay says he didn't push back against the plan, which will save on fixed costs and transform the firm into a purely investment banking operation in New Zealand.
That, he says, is playing to the firm's strengths.
"Unashamedly, we are an investment banking-driven firm," Barclay says. "Where you get into trouble is when you try to be all things to all people."
The changes probably didn't come as a huge surprise to Goldman's securities team.
The firm's long-serving former head of equity research, well respected analyst Marcus Curley, jumped ship for rival UBS New Zealand around the start of this year. And Goldman has already been covering local companies, including Fonterra and Air New Zealand, out of overseas offices for some time.
Following the restructuring, all analyst coverage of NZX stocks will be run out of Australia and Asia, while a New Zealand-based broker will carry out clearing and execution of Goldman's trades in this country.
But will analysts based in Sydney or elsewhere have the same understanding of Kiwi businesses?
"They'll have a different understanding and we think that's a point of difference," Barclay says, adding that Goldman has gained an edge on the competition by covering Fonterra out of Asia.
"Increasingly, dairy and Fonterra have a huge China component to them," Barclay says. "Goldman was the first of all the banks covering the New Zealand dairy sector to come out and say it's a sell and we think there's material downside in the GlobalDairyTrade price, and they did that on the back of intelligence out of China."
Barclay says Goldman's New Zealand investment banking headcount has increased from 14 to 18 this year, making it probably the biggest team in the country.
"Of the 18 investment bankers that we've got, six of those are what I would describe as senior bankers," he says. "They're either managing directors or senior vice-presidents, all of whom have worked in other markets and have worked across other industries."
Right now, one of their biggest challenges is finding a buyer for Solid Energy.
It's a big ask. The firm, which went into administration in August, is drowning in debt and coal prices are languishing.
Goldman was the first of all the banks covering the New Zealand dairy sector to come out and say it's a sell and we think there's material downside in the GlobalDairyTrade price, and they did that on the back of intelligence out of China.
Barclay describes this kind of work as Goldman's "bread and butter". "It's complex situations which have dimensions in them that are hard to deal with and hard to understand," he says. "Solid Energy is a case in point, but it's an important piece of work and it's got to be done." The mining firm is likely to go to an overseas buyer and Barclay says it is Goldman's "global to local" expertise and international connections that get it hired by big clients like the Government for such jobs.
Some Goldman bankers were heading off to China and India this week for work that includes the Solid Energy deal.
"Good luck to them," Barclay says. "They're tough places to visit but that's the nature of our business."
He says the Silver Fern Farms deal was similarly complex. Through the deal, announced in September, the Chinese company will invest $261 million for a 50 per cent stake in the Dunedin-based meat processor.
"The number of banks that rolled up to Silver Fern Farms and said, 'You can't raise capital for this business in this condition' was pretty lengthy," Barclay says. "We looked at it with a different view and said that if you do the following things we think you can and we turned out to be right."
Other Goldman deals this year include advising Z Energy on its acquisition of the Caltex service station network, a $43 million capital raising for A2 Milk and the $952 million sale of Vector's gas transmission and distribution assets outside Auckland to Australia's First State Funds.
Barclay says the firm is on track to have its best year ever in New Zealand. That has been driven by strong levels of merger and acquisition activity more than equity market deals such as initial public offerings and other capital raisings.
"2007 was an absolute blow-out year for M&A globally and 2015 will exceed that," Barclay says. "Growth is low wherever you go and corporates are finding it more challenging to grow organically. It's much easier to grow by acquisition." He reckons the environment will stay upbeat for some time yet.
"We think the M&A market is going to remain very buoyant for the next two to three years, which in this game is the foreseeable future." Meanwhile, Goldman is on track for a good start to 2016 on the equity markets.
The company has been hired, alongside Deutsche Bank, to manage the transtasman sharemarket float of New Zealand's Tegel Foods.
• 34,000 staff across the globe, with 35 currently in Auckland
• Took full control of its New Zealand and Australian operations in 2011, by buying the 55 per cent of shares it did not already own from management and employee shareholders
• Goldman Sachs NZ reported a $2.9 million loss for the 12 months to December 31, down from a $16 million profit in the same period a year earlier
• NZ revenue - from fees, commissions and trading - fell from $48.9 million in 2013 to $23.4 million last year
Forget finance hub - it's the market that matters
New Zealand should not be concerned about moves by global finance giants to shift jobs out of the country, says the local boss of Goldman Sachs.
Any remaining hopes that this country could ever become an international financial services hub were dealt a blow by Goldman and Deutsche Bank's recent announcements on the closure of Auckland-based operations.
About 12 Goldman staff are expected to be affected by plans to relocate its securities trading operations across the Tasman, while Deutsche Bank is closing its Auckland office, which employs 29, as the German bank gets out of 10 countries.
New Zealand clients would then be serviced from Australia, Deutsche Bank said last month.
In 2011, a Government-commissioned report advocated developing New Zealand as a finance centre, saying it would generate revenue of up to $1.3 billion a year and create 2000 to 5000 "high quality jobs" by 2020/30.
The International Funds Services Development Group - a taskforce set up by the Cabinet and chaired by well-known business leader Craig Stobo - said there was a major opportunity to develop New Zealand as a base for funds and administration. Certain tax and regulatory changes would be required, the report said.
However Prime Minister John Key backed away from the plan after Treasury warned it would require years of taxpayer support and risk a transfer of wealth overseas.
Market players have expressed concern about Goldman and Deutsche Bank's recent announcements.
But Goldman Sachs NZ chief executive Andrew Barclay says he isn't concerned about the wider industry impact of the changes. "People say New Zealand should aim to be a financial hub - I look at them and say, 'Without some serious tax incentives that's probably not going to happen'." Barclay says it doesn't matter whether a market in New Zealand dollar rate trading or securities was being made by a broker in Auckland or in London.
"I think the proposition for New Zealand Inc. going forward is actually to - as we've done with trade - embrace globalisation," he says. "The fact that really matters to me is I want lots of people participating in the New Zealand market."
Barclay says one of the local sharemarket's weaknesses is that it lacks broad international participation.
