Goldman Sachs Group Inc. aims to become one of the top five underwriters of high-yield debt because that’s more profitable than selling bonds issued by less-risky borrowers, said a report by CreditSights Inc.
David Hendler, the New York-based analyst, wrote the report after a meeting with Goldman Sachs Chief Financial Officer David Viniar as well as Dane Holmes and Heather Miner from investor relations. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment on the report.
“In contrast to investment-grade debt, high-yield debt underwriting tends to generate wider margins and more attractive fees,” Hendler wrote in the note today. “As such, the company indicated that it aims to be a top five high-yield debt underwriter.”
Goldman Sachs, which makes more money than any bank from trading, ranks sixth among managers of high-yield debt sales worldwide, according to data compiled by Bloomberg. The last time Goldman Sachs was in the top five was in 2007, when the firm ranked third after Citigroup Inc. and JPMorgan Chase & Co., the data show.
High-yield bond sales have reached a record $303 billion so far this year, which already exceeds any prior year’s total, according to data compiled by Bloomberg. JPMorgan and Bank of America Corp., the second-biggest and biggest U.S. banks by assets respectively, are ranked first and second in managing global sales of high-yield bonds this year, the data show. Credit Suisse Group AG, Citigroup and Deutsche Bank AG are the other banks in the top five this year.
Goldman Sachs is focusing its investment-banking efforts on takeover advice and equity underwriting, Hendler’s note said. Goldman Sachs is the top adviser on mergers and acquisitions announced so far this year as well as on global equity offerings, according to Bloomberg data.
The firm played down its reliance on revenue from proprietary trading, or making bets with its own money, according to Hendler’s note. Those activities will be prohibited under the new Dodd-Frank regulatory reform law.
“The company noted that its business model is not so new and that during the past three years it had gradually minimized its proprietary trading operations and illiquid assets,” the note said. “So while proprietary trading could be viewed as a ‘nice-to-have’ functionality, it is not a ‘must have’ for its client-focused businesses.”
Goldman Sachs said the investment banking and capital markets industry could be hampered because of slow economic growth in the largest and most developed markets, and so the firm’s plan is to seek growth opportunities in emerging economies such as Brazil, Russia, India, China and Korea, Hendler wrote.
“Goldman Sachs seeks to rank among the leaders in market share of these markets across all major categories including equity, M&A, higher-margin debt and other investment-banking activities,” Hendler wrote.