The Memo Goldman Might Have Written

Documenting the terms of informal advice avoids accidents.
As of 1:40 PM EDT
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Note to self: put it in writing.

The British parliament's investigation into the collapse of retailer BHS hasn't been thrown off course by the Brexit vote, and the latest figure to face a grilling by lawmakers is Michael Sherwood, the Goldman Sachs pointman for the bank's relationship with billionaire fashion mogul Philip Green.

When Green still owned BHS in 2014, he asked Sherwood, vice chairman at Goldman, if the bank might want to advise on a deal to sell the department-store chain. Goldman declined a formal mandate but agreed to make what it later described as "preliminary observations." This was nevertheless enough to get Sherwood hauled in front of a special panel of lawmakers on Wednesday and asked if he accepted any blame for BHS's subsequent bankruptcy.

Sherwood said one regret was that the bank's limited role in the BHS sale was not documented in writing. If this were fully set out, what might it have said? Gadfly imagines the memo…

Dear Sir Philip,

Thanks for the call just now. You were right to suggest that an advisory mandate on the sale of BHS is just too small to tempt us here at Goldman Sachs. We're a big firm; we're mainly interested in big deals. Think of that hostile $12 billion takeover bid you made for Marks & Spencer back in 2004. I hope you still remember the huge resources we made available then, with our teams all over the bank working flat out 24-7.

I understand you might have got the impression that we are size-agnostic because of all the other bits and bobs we have being doing for you over the years, often pro-bono. If you want to know our informal thinking on, say, where the pound is headed, we'll always make our experts available without a fee. So we're happy to look over some elements of a potential BHS deal in this context.

But I want to be transparent, all these bits and bobs add up and they're a loss-leader for us. We're fully expecting to recoup the cost when you eventually "do an M&S" again.

We all know the Big One we're primed and ready to swing into action for -- the sale of Topshop, which had an enterprise value of 2 billion pounds in 2012.

With that clear, we're here to help in the meantime. We will cast our eye over things, give you the time of our most expensive bankers and maybe even lend you our name in dealing with other parties. What you're getting is Goldman-lite. Treat it as such. You'll see a big difference when we work on the Big One (which we're assuming we will).

When you're getting Goldman-lite, our limited involvement might inadvertently create the impression that we're going along with your plans even if they involve counterparties that don't in fact pass our sniff test. (We're bankers remember -- it's not in our instinct to stop transactions happening). So just be aware of that.

We happen to think this is a fantastic arrangement for both you and us over the long term. Sure, we at Goldman will rack up some costs over time, but one day we'll make all that back and then some. We both know this is how the investment banking industry works.

I'm putting this in writing because the costs for both sides might include some reputational damage if we misunderstand the nature of this arrangement. We want to avoid a bit of informal help landing either of us in front of a Parlimentary committee.

Anyway, hopefully it won't come to that. And maybe, even if it does, everything will come out in in the wash when the Big One comes.

With best wishes,


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