Goldman’s new strategy gets baptism of fire

Goldman Sachs CEO David Solomon speaks during the Goldman Sachs Investor Day at Goldman Sachs Headquarters in New York City, U.S., February 28, 2023.
Goldman Sachs CEO David Solomon speaks during the Goldman Sachs Investor Day at Goldman Sachs Headquarters in New York City, U.S., February 28, 2023. REUTERS/Brendan McDermid

NEW YORK, March 15 (Reuters Breakingviews) - The collapse of Silicon Valley Bank is providing a slightly awkward showcase for Goldman Sachs’ (GS.N) manifold talents. The Wall Street firm’s traders bought bonds from the technology-focused lender as its bankers attempted to help plug the resulting hole the sale left in SVB’s balance sheet. And it is in position to scoop up troubled assets elsewhere. It’s true to the new unified “One Goldman Sachs” strategy expounded by Chief Executive David Solomon, dampened by the client not living to tell the tale.

Goldman was a logical place for SVB Chief Financial Officer Daniel Beck to call when Moody’s Investors Service warned him a couple weeks ago that it was considering downgrading his bank’s credit rating by two notches. The investment bank Solomon now leads scrambled throughout the financial crisis to help panicked clients shore up their finances. It also has firsthand near-death experiences to lean on, both in 2008 when it went cap in hand to billionaire Warren Buffett and in 1994 when dozens of partners decamped after a Federal Reserve interest-rate hike led to major trading losses.

This time, Goldman’s capital-raising powers fell short. SVB’s financial models had to be revised on the fly and approved by its board as the situation deteriorated. The speed with which depositors pulled their funds also meant there was no time for Goldman to invite big fund managers to “cross the wall,” the process in which banks show potential investors material non-public information that would make them comfortable enough to buy new shares ahead of any public disclosure.

Instead, in a bid to appease Moody’s and prevent the perilous downgrade, SVB unveiled plans for a $2.3 billion capital hike before it was fully underwritten. There also was no soothing imprimatur from Buffett, or a rich Silicon Valley grandee such as Larry Ellison, Steve Ballmer or Larry Page. What’s more, the sum would have only just covered the loss from SVB’s simultaneously announced sale of $24 billion of mostly low-yielding Treasury bonds. When a bank is in dire straits, it generally takes an eye-popping amount to reassure depositors and investors.

As it happens, Goldman was also the bank that crystallized SVB’s $1.8 billion loss by acquiring the bond portfolio. Although it would have been handled by a separate team inside Goldman, it speaks to the “more integrated and comprehensive approach to serving our global client franchise” that Solomon laid out for investors last month under the “One Goldman Sachs” brand. Given the bank’s solid capital position, its crisis credentials and broad network of connections, it’s easy to imagine there will be ample opportunities to help other financial institutions – and itself – in many ways as they navigate tumultuous times.

There are useful lessons for other lenders from SVB’s collapse. It’s best to address any maturity mismatch between assets and liabilities before times get tough and to raise capital when it’s possible, not when it’s needed, while having all the necessary facts and figures ready for prospective rescuers in case of emergency. It’s a tall order, but thankfully Goldman Sachs is available to help.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


SVB Financial said on March 14 that Goldman Sachs was the buyer in a bond sale on March 8 that left the lender with a $1.8 billion loss, two days before SVB's banking unit, Silicon Valley Bank, was taken into receivership.

Goldman also was advising the bank as it tried to raise capital before it failed.

Editing by John Foley, Amanda Gomez, and Sharon Lam

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