The Great Goldman Break-Up: The Vikram Pandit Factor

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Last night we made a brief appearance on one of our favorite CNBC shows, On The Money, and spent a bit of time talking about the Big Idea of spinning off Goldman's trading and hedge fund business.
In the first part of the segment host Melissa Francis asked CNBC's Charlie Gasparino about possible big bank deals in light of the stellar performance of JP Morgan Chase. You know how these things work. A company reports numbers like the one's the JP Morgan Chase did this week and the investment bankers come out of the woodwork with pitchbooks at the ready. There will be pressure to do deals, to start making acquisitions. The question is whether chief executive Jamie Dimon will give in to the seduction of the dealmakers or whether he'll continue to abstain.
Gasparino's convinced that Dimon won't start building JP Morgan Chase into an empire of acquisitions. The most talked about deal on the street, an acquisition of Bear Stearns, would be too expensive, Gasparino says. We agreed, mostly because we think will be hard for the bank to find a bank or financial services company that is beating JP Morgan Chase in an area that the bank is interested in growing. (Although we're ready to hear from you if you've got likely targets. Leave a comment or send an email to tips@dealbreaker.com.)
At the end of the segment we turned to the Big Idea. Since we first published the Big Idea, we've talked to investment bankers who think that spinning off the hedge fund and trading business might be a good way for Goldman Sachs to realize the value of the business it built up. Goldman doesn't seem to get full credit on Wall Street for its hedge fund and trading operations, in part because Goldman's disclosures about these groups is somewhat opaque. A serious danger faced by Goldman is that its top traders might look elsewhere for a big payday.
And that's where the Vikram Pandit factor comes in. When he was at Morgan Stanley, Vikram made decent coin but nothing that would make headlines or build multi-generational empires of wealth. He left to found his own hedge fund, and one year later sold it to Citigroup for a rumored $600 million. That has to have a lot of people, not just at Goldman Sachs, scratching their heads and doing some quick math about the risks and rewards of striking out on their own. We're hearing from investment bankers who have talked to people insider the firm that Goldman could face pressure to spin-off its trading and hedge fund business in order to realize the value of the business before its guys start to defect or strike out on their own.
Perhaps the strongest case against this idea rests on four factors. First, breaking-up and spinning-off runs contrary to the current orthodoxy on Wall Street, where the banks have been acquiring hedge funds and building private equity businesses. There's the value of the Goldman Sachs name, which communicates an undiminished elite status. There's the knowledge within Goldman that the larger firms needs its trading business, and it will be loathe to let it go under any circumstances. And, perhaps most importantly, there's Goldman's share price, which is now trading at its 52-week high. Everyone with equity has been getting a raise for the past several weeks. That's no doubt dampening the urge to split.
Banking on Big [CNBC]

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