More Chatter About Breaking Up Goldman Sachs

[In the very first of our Big Idea columns we proposed something that we knew would be controversial—breaking up Goldman Sachs—but we hoped would spark discussion. And that’s what it’s done. First on the Financial Time’s Alphaville blog, then in Thorold Barker’s Lex column in the Financial Times, and over to the personal blog of Portfolio finance blogger Felix Salmon, where it was picked up by the Evening Standard tabloid. Each writer, of course, has picked up a new aspect of the Big Idea: Barker argued for transparency rather than breakup and Salmon for a leveraged buyout. But the discussion continues today in the latest edition of the Big Idea.]

Analyst Richard Bove is “toying in a recent research note with the notion of a Goldman breakup,” says Mark DeCambre on thestreet.com. DeCambre and Bove, an analyst at Punk Ziegel, both pick up with the notion that got this discussion going: Goldman seems to trade at a discount compared to the multiples the market seems willing to tolerate in smaller investment banks, hedge funds and private equity firms.

DeCambre writes:

Yet for all of Goldman's dominance, the stock is hardly loved by Wall Street. Richard Bove, analyst at Punk Ziegel, notes that Goldman trades at a steep discount to many lesser rivals -- in part because diversified financial giants, like Goldman and Citi, don't tend to get premium multiples.

Bove points out that Goldman trades at 10.4 times its projected fiscal 2007 earnings. Meanwhile, high-profile boutiques such as Lazard and Greenhill sell at multiples twice that of Goldman.

We haven’t read the Bove note yet but it seems that both Bove and DeCambre treat this as more of an intellectual lark than a serious exercise in predicting a break-up.

“Mark DeCambre admits up front that Goldman Sachs ‘isn’t considering a breakup right now.’But that hasn’t stopped Mr. DeCambre, who writes for TheStreet.com, from joining the others who have recently speculated about what such a hypothetical and unlikely breakup might mean for the hugely profitable securities giant,” DealBook notes on its item following the discussion today.

Last week, however, DealBreaker had lunch with a former Goldman Sachs investment banker who reminded us that there was a time when no-one believed that the Goldman partnership would go public. Some doubted that it was even possible to take the bank public, given the disclosure requirements and concerns about having conflicts between duties to clients and to shareholders. All that vanished, however, when Goldman did finally go public.

Could Goldman actually breakup?

“Stranger things have happened,” he said.

Splitting the Goldman Sachs Difference [theStreet.com]
Playing the Goldman Breakup Game [DealBook]