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Finance

Asian cull makes Goldman Sachs look rattled – Berita Daily

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By Quentin Webb

Manage and Sync Music

An Asian cull makes Goldman Sachs look rattled. The US bank is cutting nearly 30% of that investment-banking team in Asia outside of Japan, Reuters says.

The region’s problems are familiar and longstanding: lumpy deal flow, fierce competition and skimpy fees.

But Goldman’s pullback suggests the scandal over Malaysia’s disgraced 1MDB sometimes have curbed its risk appetite too.

Goldman’s headcount for mergers and acquisitions, debt and equity capital markets is going from 300 to a little more than 200 bankers, Reuters reported on Sept 24, citing sources.

Fees from takeovers, loans, and bond and share sales are actually rising every year in the community, albeit after the difficult start, nevertheless the going remains tough for international banks.

Chinese transactions makeup a huge slice of fees, but the majority within their business would go to domestic banks. Other regional players also are fighting back. Many Asian clients baulk at paying much, however, for advice. Thus fees on marquee transactions like flotations are cheaper than you are on Wall Street.

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On the surface of that, Goldman has received a wobble of its own. Its regional investment-banking fees crashed 46% in the first half, Thomson Reuters data shows, far underperforming a ten percent drop all over the market.

The pain appears concentrated in equity, rather than M&A C where Goldman remains to be a powerhouse C or bonds. Excluding onshore Chinese deals, Goldman fell to fourth from first place for regional equity and equity-related issues.

A few megadeals tends to make a big difference in investment banking. Even so the falloff in Goldman’s industry is striking nevertheless. Goldman has become the single most powerful and profitable foreign banks in your neighborhood, and a patient pioneer in advising China.

The widening scandal around 1MDB, every lucrative bond-issuing client for Goldman, will help explain the timing with the adjustment.

US and other authorities are out for blood. The Justice Department says above US$3.5 billion was stolen with the sovereign fund. The episode have to be consuming management attention at Goldman, and even forcing your banker to become more selective concerning the deals it does do.

In that context, patience is a virtue, but same with thrift.

Quentin Webb is surely an Associate Editor at Reuters Breakingviews. He covers mergers and acquisitions, corporate finance and private equity in Asia.

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