Search the Internet          Tips  Sites: Finance, Investment

'The current economic slowdown is transient'

As the slowdown in the US and elsewhere seems to be accelerating, what will the big old investment bankers like Goldman Sachs do to tide over bad days? Will this be an era of lesser mergers, acquisitions and IPOs? Or will it be business as usual for these bankers?

E Heige Weiner-Trapness, managing director and co-head of high tech investment banking for Asia for Goldman Sachs, spoke to M D Riti when he was in Bangalore recently on the importance of strategic mergers and acquisitions to run businesses expertly.

Weiner-Trapness, a management graduate from Harvard Business School, believes that this depression will soon wear itself out. However, he admits that the need for firms like his is to continue to sustain long-term relationships with clients, and wait until early next year for businesses to pick up again. Excerpts from the interview:

Do you see the present economic crisis that the US and parts of Asia are going through worsening? Or do you view this as a transient problem?

I would view it as transient. The key question is how transient it is. Earlier this year, analysts were hopeful of a quick recovery. They said the first two quarters of the year would be tough as there would be an inventory build-up that would have to be worked through. In the second half, everyone believed that things would look up.

But I think people are blindly hanging their hopes on the belief that the economy is going to take off in the second half of the year. There is no concrete evidence that this is going to happen. I think people are a little bit more cautious now and realise that we will have to wait for the last quarter before things really start looking up.

Is this depression linked to the US presidential elections?

No, I don't think so. Maybe for a month or so people kept their eyes glued to the TV screens instead of going out shopping. This might have affected the retail trade a bit.

The economy was growing at an unsustainably fast rate through year 2000. When that growth rate slowed, we were caught flat-footed, especially on the technology side.

People had extrapolated demands for technology and technology spending based on an unsustainably high growth rate in the US.

A slight slowdown in the US economic growth and IT spending growth had a huge impact on the inventories being built up and when those inventories got too high, people had to step on the brakes very quickly.

How will this slowdown affect the business plans of an investment bank like Goldman Sachs? Will you support fewer IPOs?

Clearly, the finance markets are very tough right now, and as a result, investment banks are doing very few deals. I do not know if my numbers are exactly right, but a year ago to date, globally, there had been 48 IPOs, over 50 million in size.

At this point this year, there are only 5 IPOs globally. We are actually significantly behind. All this has impacted our business and that of our competitors.

It's a tough business environment. But we continue to have active dialogue with our clients who are going to need capital in the long term, and who are going to do merger and acquisition transactions.

We are very optimistic, overall, for the long-term growth of technology, particularly in Asia.

Do you see a reduction in the number of M&As taking place this year?

While financing is down, I actually think that mergers and acquisitions should take off , particularly in an environment like this. I think it's very important for companies, when capital is not free-flowing any more, to really focus on running the business very well, getting the profitability quickly.

But it is also important to use strategic mergers and acquisitions to come forward as winners.

What business strategy have you adopted to tide over this IT slowdown?

I will talk mainly about our Asia business since I am most familiar with that. I think that we have grown our Asian business on the investment banking side very rapidly over the last few years.

Since we do not expect to grow at the same rate that we have grown at in the past, we will see more of a consolidation of our businesses.

But we are not going to reduce the size of our business. We think it is pretty properly sized for now. Long-term, we are very bullish in Asia as we have invested very heavily here in terms of getting the right people in the right places.

Over time, we will continue to build aggressively our business in Asia. Next year will be one of the years when we sit tight and keep our head count and digest the enormous growth we have had in our investment banking sectors in terms of the number of people we have added over the last two years.

I think that is the healthiest thing for us to do now. Long-term, we are looking to build our business in Asia and make it very strong.

Why have no investment bankers grown indigenously in India?

I have never thought of it that way. I think what is happening in the capital markets is that they are globalising, and that too very rapidly over the last 15-20 years.

The banks that have been the most aggressive globally, and have developed expertise in financing, mergers and acquisitions and in the various industries who are big clients and globalising at the same time, have the skill set necessary to become big.

The banks who have gone about globalising on a very big scale are the ones that today look most successful. The ones that are situated in the best position to provide advice globally are mostly US-based banks, with a few European ones. Very few are from Asia.

I suppose this has to do with the size of the domestic market, which serves as a base for an investment bank. Moreover, the number of multinationals in the US is much higher.

Money
Interviews

Tell us what you think of this interview