Goldman's outlook

Goldman’s Asia outlook

Dan Dees and Matthew Westerman, Goldman Sachs’s investment banking co-heads for Asia-Pacific ex-Japan, give their outlook for the region.

Goldman Sachs has become journalists’ favourite kicking toy in recent years: from the vampire squid, to doing God’s work, to muppets, its top executives have been the target of choice.

Having long held the view that it’s better not to talk to the press, than talk, the corporate culture hasn’t helped matters and Goldman has lost a bit of its lustre.

In Asia, the picture has been somewhat different. The dark panelled, rich-carpeted, hushed hallways of its 68th-floor lobby in the Cheung Kong Centre oozes wealth that appeals to Asia’s corporate executives who value classic brands and opulence. Goldman has been a blue-chip name that clients have wanted to acquire, just like their fancy cars, watches and wives’ handbags. And so journalists be damned, the mud-slinging didn’t stick.

But to say brand recognition is how the firm has kept clients would be a gross understatement. Sure, it helps woo interest, but Goldman has to deliver as well. And that requires talent. So Goldman, like many firms across the street, has been importing rainmakers from New York and London to build its business (and markets) in Asia.

With Europe a mess, and the US still on uncertain footing, Asia’s potential is obviously attractive. But that doesn’t mean it will automatically work out for the Wall Street or City of London old hands. More than a few high and mighty dealmakers at a variety of firms have bulldozed into Asia thinking it was the Wild West, or worse, simply unsophisticated, misreading clients and colleagues alike. Some quickly discover they are wrong. Others don’t pick up on it fast enough, burn their bridges, and are essentially forced to retreat, tails between their legs.

Matthew Westerman

And so you see a revolving door of bankers. In February, we announced that Matthew Westerman would join Dan Dees to become co-head of the investment banking division for Asia-Pacific ex-Japan at Goldman. Westerman moved from London, and we noted in our web story that he would start his new job on the not-so-auspicious date of April 1.

It now seems appropriate. Rather than seeing the pair-up as a threat to who climbs the ranks higher next, Westerman and Dees’ working relationship appears to be chatty and upbeat. Despite being separated by a common language (Dees is a Duke graduate Yank, Westerman an Oxford-graduate Brit) they appear to be friends; indeed, if they don’t actually like each other, they deserve Oscars for their performance.

Dan Dees

Many investors and clients will already know Dees, who was previously head of the financing group in Asia-Pacific and is said to have been a key driver of Goldman Sachs’s work on AIA’s initial public offering in 2010. He joined the firm in 1992, was named managing director in 2001 and partner in 2004, and is now a member of several of the firm’s top-level committees.

Westerman was most recently global head of equity capital markets (ECM). He also serves on a series of significant Goldman Sachs internal committees, having joined the firm from Rothschild as a managing director in 2000 and was named partner in 2002.

And he is hardly just off the boat. He has been working on Asian ECM deals since joining the firm, including the 1997 $9.8 billion initial public offering of Telstra, the 2003 $1.6 billion Chunghwa Telecom American depositary receipt listing and the $2.5 billion IPO of Prada in 2011.

Asia is where it’s at
“When I left London, I thought: ‘Europe is at the bottom now.’ Maybe I’m making a mistake, but now it looks like my move was even more inspired,” joked Westerman.

“It feels like the wind is at our back,” added Dees, pointing to the trends that have been driving the region for the past few years, such as elevated gross domestic product growth levels in the region, development of local bond markets, increased depth of the equity markets in the region, increased financial sponsor activity and China’s natural resources appetite.

So Goldman has been building.

“Historically, we have been — just like the street — ECM heavy,” acknowledged Dees. “But you’ve watched us build our four-pronged platform of equity, debt, M&A and derivatives. And in a year like this one, that has proven to be the right strategy,” he said, noting that Goldman Sachs is currently No. 4 in G3 investment grade bonds in Asia ex-Japan.

Goldman as a bond house is something that must make the likes of HSBC chuckle. But it’s not the same business model. “We’re kind of doing it our way,” said Dees, pointing out that the bank focuses on relationship clients, and financing around M&A and hybrid capital, or as he put it: “the more sophisticated end of the product spectrum”.

And indeed, Dees was instrumental in this four-pronged platform approach that focuses on Goldman’s strengths. In 2010, when he was running the financing group, he lured a partner, Andrea Vella, from London to head credit capital markets in Asia-ex Japan and the derivatives business in Asia. He also wooed Dominique Jooris from London as well to build the hybrid debt capital markets and the investment-grade business.

Both Dees and Westerman schemed to recruit Steve Barg from UBS to give more breadth to the ECM business.

As Westerman said, “If you stay static, you will ultimately struggle, so you have to develop.”

Pass the happy pills — who are these guys? Realists, it turns out. “The consequences of Europe [imploding] from a consumption point of view would be bad for Asia,” said Westerman, referring, obviously, to the fact that Asia makes the goods that the West buys. “And you could get gloomy about the US markets if you wanted to...”

Fears that peripheral eurozone countries are on the verge of failure and that the US isn’t recovering fast enough have certainly spoked markets of late.

In the last week of May, Graff Diamonds decided to pull its $1 billion initial public offering. It was the third Hong Kong IPO to call off or postpone listing plans in a single week. On May 28, BMW dealer China Yongda Automobiles Services Holdings cancelled its IPO that was targeting between $306 million and $435 million after failing to attract much demand. And on May 30 China Nonferrous Mining Corp put its $235 million to $314 million offering on hold.

But you could attribute this all to a contagion of market jitters. Both men prefer to look at the bigger picture.

While they acknowledge that China will slow down, growth will still be double most other places in the world, and funding will have to come from sources other than banks.

Has it changed much since the fall of 2007? There have been windows of opportunities, and months of gloom, but by and large the market conditions have remained the same, noted Westerman.

That leaves two likely scenarios.

The markets tick along slowly with bursts of equity deals here and there where a dozen bookrunners fight for a piece of the action on the headline grabbing events, but only a few firms can claim to be sole-book originators on other deals that actually make money.

Fees compress and advice is far from cohesive. You work harder to differentiate and inevitably some of the competition says it’s not worth it. They pull out slowly, painfully over time, while a handful of firms build.

Or, there will be a catastrophic event and finally a prolonged bear market. No windows and big failures. All will suffer, but a few will survive.

The first scenario is what Goldman is banking on in Asia. That latter scenario is ugly, but one Goldman bankers say they’d endure if it were to happen.

Either way, what you need are people at the helm who clients are going to want to return to, and who don’t draw negative attention like lightning rods.

Dees and Westerman fit that bill.


This story first appeared in the June issue of FinanceAsia magazine

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