Richard Gnodde has long been loyal to his employer. The 55-year-old South African banker has spent 28 years with U.S. investment house Goldman Sachs, among other things helping to build up its operations in Germany and Europe in the 1990s.
Now, Mr. Gnodde is one of three leaders of Goldman Sachs’ consulting business. Together with Michael Scherwood out of London, he also leads the European, Middle East and African business of Goldman Sachs International.
Mr. Gnodde spoke to Handelsblatt on a recent trip to Frankfurt, where he planned later that evening to celebrate the bank’s 25-year anniversary in Germany.
With many investment banks like Deutsche Bank pulling back, Mr. Gnodde spoke of Goldman’s plans to attack its rivals in their home market. Despite the competition, he sees “huge potential” in private banking and asset management in Germany. The bank may even jump into consumer credit in Europe in the coming years.
Mr. Gnodde, your rival Deutsche Bank recently significantly wrote down the value of Investment Bankers Trust, the U.S. bank they purchased 16 years ago. Is Goldman’s core business – investment banking – worth less today than it was back then?
No. Nevertheless, the tougher regulations in the wake of the financial crisis have forced banks to increase their capital reserves, keep more liquidity on hand and generally reduce their balance sheets. We implemented these new requirements as quickly as possible and attempted to be able to remain focused on our clients as much as possible.
The perception outside of Goldman is often different: People tend to think Goldman puts their own interests ahead of customers.
Goldman Sachs in Germany is a German bank. We have been here for 25 years and will remain here for the next 125 years.
Our success depends 100 percent on the quality of our client service. Our market share speaks for itself. Year after year we are one of the leading investment banks in M&A advisory service and for equity capital markets, for example IPOs. That has been the case both over the past 12 months and over the past 10 years. The same applies to our trading business; we have been able to expand our market share over the past years, even while the others have retreated.
Among those retreating are large European banks such as Barclays, Credit Suisse and Deutsche Bank. Are these institutions abandoning the sector to U.S. banks?
Competitors who do not have the market share, or who cannot hold it in order to profitably remain in the business, will need to cut back. Many will maintain a position in investment banking, but it will no longer be the focus of their business. You can see some shifting to asset management while remaining active in currency and interest-rate trading for their clients. Every bank needs to think about where their strengths lie.
Here in Germany, one often hears that the country needs a global bank based here because they will become too dependent on U.S. institutions.
To me, this is a moot discussion; Goldman Sachs in Germany is a German bank. We have been here for 25 years and will remain here for the next 125 years. Germany is a large and important part of our business.
How has the market changed since Goldman brought investment banking to Germany?
When we first came here everything was about privatization, for example the Treuhand or the Telekom IPO in 1996. A restructuring phase then followed, in which many corporations invested internationally and expanded their global businesses. We were fortunate enough to advise many of them. The resulting success and strength of German companies has been extraordinary and should be admired globally.
What is the strategic plan for Germany, where does Goldman hope to expand in the coming years?
We will continue to invest in our asset management and private banking businesses, which are still very young. We think this area holds huge potential for us. We want to expand our market share, but in a well-planned manner, taking one step after the other. However, we want to expand our market share in Germany in other areas as well.
You are currently building up consumer credit business in the United States. Do you plan to do the same in Europe too?
We are at the very beginning. If we are successful in the U.S. we might bring this business to Europe, too. However, our primary aim is first of all to establish the consumer credit business in the U.S. This is currently the main focus of our attention.
When do you anticipate bringing this to Europe?
First of all we’re working as fast as possible to get the business up and running in the U.S. It will be two to three years before we can think about bringing it to Europe and therefore to Germany too.
If we were to talk again in 25 years …
… I look forward to it …
… could I then get auto financing from Goldman, or open a bank account?
I don’t think so. We know what we do best and we will focus on that in the future too.
Last year, the extravagant Alex Dibelius was replaced as the CEO in Germany by two somewhat less colorful joint CEOs. Does this reflect a new era in which a different type of personality is required in banking?
Alex was a great leader for our franchise. He helped to build it up. But things change. Now we have, in Wolfgang Fink and Joerg Kukies, two new, outstanding leaders who came up under Alex but who are now bringing along and developing their own management style. This is also necessary. The world would be a boring place if we all had the same character. You need a wide range of personalities.
After the financial crisis there were a whole range of scandals in investment banking. Goldman itself was involved in some of them. How many more of these will we see?
I think that we are looking at most of them in the rear view mirror. Having said that, many banks are still battling legacy events that must be dealt with. The main thing is that most banks have raised their standards and have an even closer focus on complying with the rules.
Have modifications to the structure of bonus pay-outs also contributed? By enabling banks not to pay the money out or to claw it back in the event of misconduct?
The structure of remuneration plays an important role. Paying employees partially in shares, as we do, is important, just as having the option of withholding bonuses in the event of losses or misconduct even years later is.
Will Goldman Sachs get more involved with financial technology (fintech) ventures? You have already got the chat supplier and Bloomberg rival Symphony off the ground.
Technology is now an essential part of our business, it plays a part in almost everything we do and offer. We are investing huge sums in it. Therefore, it wouldn’t be wrong to call ourselves a financial-technology company.
How much are you investing?
About a fifth of our people are technology experts. That gives an idea of the amount.
Finally, a lot has been said about the renaissance of the consultancy business. You come from this sector yourself. Do you feel that this is gaining ground over dealers?
We work as a team and the question of the balance of power of both sides is slightly overestimated. Goldman Sachs’s strategy is to use all the available resources. We would like these all to be at full speed at the same time. But experience tells us that this is never the case. It is true that currently the corporate consultancy business is flourishing. Trading has a challenging, less attractive market environment. But I know for sure that, in the next few years, this sector will make a comeback again.
But there are certainly times when one side contributes more to the profits and therefore has more influence.
We always rate ourselves by how well we have done in relation to the market. Even in the financial crisis years, when advisory services for transactions and IPOs were in a bad state, we looked at how we did compared to the competition. And although we contributed less to the profits measured purely in numbers back then, our market share continued to grow.
So you don’t think that there has been a structural change to the commercial transactions market. Will trading see a revival?
There is a great difference from the time before the financial crisis: You can no longer simply use the debt lever to achieve adequate returns. You must stand on your own two feet to be sufficiently capitalized to make profits. Business has therefore become much harder.
Daniel Schäfer, who heads Handelsblatt’s finance pages, conducted this interview. To contact the author: email@example.com