Goldman clients staying put

By David Ellis, staff writer

NEW YORK ( -- It has been nearly three weeks since the federal government stunned Wall Street by bringing civil fraud charges against Goldman Sachs.

Since then, the firm has endured a firestorm of criticism and a rash of lawsuits. But so far, that has done little to scare off long-standing Goldman customers.

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"Has this helped? No. But I don't think they have seen this sudden exodus of clients," said one senior banker at a rival firm, who was not authorized to speak officially on the matter.

In fact, Goldman (GS, Fortune 500) has done a pretty admirable job of maintaining the status quo in spite of the scrutiny that has erupted since the Securities and Exchange Commission took aim at it.

The New York-based firm served as a key advisor for airline United in its merger with rival Continental. Goldman also counseled struggling smart phone maker Palm on its recent $1.2 billion sale to tech giant Hewlett-Packard.

At the same time, Goldman is slated to handle a number of big public offerings in the coming weeks, including that of the trendy clothing retailer Express and the options exchange giant CBOE Group.

By most measures, Goldman is still viewed as the firm to beat on Wall Street, with arguably the best stable of talent and the impressive network of contacts that come with it. That has been hard to ignore for many companies -- especially those looking to go public.

"Goldman is top notch and best in class from that standpoint," said Paul Bard, director of research at the Connecticut-based firm Renaissance Capital, which closely follows the IPO market.

Staying strong, but still vulnerable

That isn't to say that Goldman has not, or won't, endure some setbacks as a result of all the scrutiny and bad press.

A handful of clients have already cut ties with the firm altogether, according to reports, including German commercial lender BayernLB. The company did not return a call for comment.

But that number could grow, some experts said. Government clients, for example, may shun the firm out of fear of being associated with the Goldman name.

Germany is already considering such a move, according to recent reports. Goldman was among a group of financial firms that helped the country's state development bank KfW issue debt earlier this year.

If other governments around the world follow suit, that could take a bite out of Goldman's bond underwriting business. Last year, the company was the eighth-largest issuer of sovereign debt, according to Thomson Reuters, underwriting some $19.3 billion in government bonds.

Those same fears could also send further disruptions throughout its money management business.

Goldman has already lost several clients this year, including the Public Employees' Retirement System of Nevada, which cut ties with Goldman in late March. As of the end of the first quarter, Goldman's asset management business controlled some $840 billion, down $31 billion from the end of 2009.

In an effort to prevent further fallout, Goldman employees are believed to be actively reassuring clients across their various businesses, downplaying claims made by the government.

Still, that the turmoil could present opportunity for competitors. Some experts argue, for example, that rivals could attempt to poach several of Goldman's hedge fund clients from its prestigious prime brokerage business, which provides a suite of services to hedge fund investors.

There is also speculation that clients could push for a more generous fee arrangement, eliminating the pricing power that some say Goldman has enjoyed over its competitors in recent years.

After all, the SEC fraud allegations are centered on a transaction it helped conduct for one of its hedge fund clients.

But Goldman is unlikely to lose much of that lucrative business, said Josh Galper, managing principal at Finadium, a Concord, Mass.-based financial market consulting firm.

"I don't think hedge funds will be quitting Goldman's prime brokerage business for this," he said. To top of page

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