JP Morgan and Goldman are on a collision course for billion-dollar deals far from New York

  • Goldman’s decision last year to create regional offices has opened up new fronts in a war over advisory fees, pitting its bankers against those from J.P. Morgan.
  • "They are 100 percent coming after our model because they've seen the success of it," said J.P. Morgan banker John Richert.
John Richert, Head of Regional Investment Banking at JP Morgan 
Source: JP Morgan
John Richert, Head of Regional Investment Banking at JP Morgan 

John Richert knew the moment Goldman Sachs was coming to town.

First, the J.P. Morgan Chase banker got a call from a recruiter in June 2017 asking if he would consider joining the rival. Then Goldman went after his entire team of nine bankers. Now, he's running into Goldman on a daily basis as the two banks compete to provide companies advice on mergers and other deals.

While high-stakes competition between the two titans isn't new, the battleground is: Richert, 46, is located in Atlanta and focuses on companies that generate $500 million to $5 billion in revenue, regional businesses that Goldman had mostly ignored.

Ever since Goldman created satellite offices last year to get closer to clients, the two banks have been going head-to-head in arenas hundreds of miles from Wall Street. It's part of a broader push for fees and bragging rights among banks as deal activity in North America surged 53 percent to a near-record $1.43 trillion this year.

Bankers who may have previously been based out of New York are now fanning out from regional hubs to seal deals in far-flung locales like Chattanooga, Tennessee, and New Albany, Ohio.

"What the world forgets is that there's a lot of small towns with a lot of really big companies that are hard to get to unless you fly around in a private jet," Richert says. "But if you can hop into a car and drive there in two hours, you're more likely to see that person and develop that relationship."

The market is getting crowded. Historically the domain of smaller investment banks like William Blair and Piper Jaffray, big banks have pumped resources into the regional advisory business as revenue growth from trading desks has proved elusive.

Apart from Goldman, Wells Fargo and Bank of America have both said they are pursuing the market. In the past year, BofA has almost doubled its regional team to more than 20 bankers, according to a spokesman. Among the top three banks in mergers, only Morgan Stanley doesn't have a publicly disclosed initiative in this market, according to a spokeswoman.

'They are coming after our model'

J.P. Morgan's effort started in 2012, when Chief Executive Officer Jamie Dimon decided that the bank wasn't getting its share of investment banking fees from commercial bank clients. At the time, the company typically assigned bankers who were past their prime to try and drum up business with the division's clients. It wasn't a winning strategy.

So J.P. Morgan decided to post stars in key regions. That included managing directors Andy Rabin in the South, Jason Anderson in the Northeast and more recently Joe Winters in the Northwest. In May, Richert, who ran the Southeast practice, was named head of the regional investment banking group, replacing James Roddy.

The team, which has about 60 employees, increased revenue from deals to $2.4 billion last year from $800 million in 2012. J.P. Morgan wants to add at least another $600 million in fees.

That pits it squarely against Goldman, which has roughly the same number of bankers in its regional group and said it wants to generate $500 million in revenue from its push.

"They are 100 percent coming after our model because they've seen the success of it," Richert said. "Not that there are any new ideas in investment banking. People have tried to do it before, they just haven't gotten it right."

Like any good banker, Richert is quick to point to his successes, times when they faced off against Goldman and emerged victorious.

He rattles of a list that includes advising Dallas-based Trinity Industries on an $8 billion spinoff of noncore businesses, the $1.4 billion sale of Plano, Texas-based-Rent-A-Center to private equity, and Carthage, Missouri-based Leggett & Platt's $1.25 billion purchase of a foam manufacturer.

Goldman's pitch

But Goldman is also finding success far from New York.

The bank has boosted revenue by $200 million, about 40 percent of its overall goal, Chief Financial Officer Stephen Scherr said this month. They've reached out to most of the 1,000 new clients targeted by the firm, he said.

Goldman's strategy differs from J.P. Morgan in that its local bankers cover both midsize and huge companies. Goldman's pitch: As the world's top merger advisor by value of announced deals and arguably the best brand in this space, it now has a local presence in addition to top sector experts back in New York. The bank opened or expanded offices in Seattle, Atlanta, Dallas and Toronto last year, placing a partner in each location.

"We worked hard to make sure that the clients that are sitting in these regions now have access to the local coverage but also we marry that up with industry group coverage, so the client's getting the best of both worlds," said Matt Gibson, co-head of Goldman's global investment banking services.

Goldman has been forced to dig deeper for revenue because of a multiyear slump in trading revenue. The firm rarely hired outsiders, especially at the top level of partner, but its struggles have forced it to open up. It has lured at least 16 partners from outside the company since 2017, including senior J.P. Morgan banker Kurt Simon in August.

Peak competition

In banking circles, there's a joke about what it means when the big banks make a play for regional business: The deals market has already peaked.

Richert doesn't disagree. According to J.P. Morgan economists, an economic slowdown is possible as early as 2020. When that happens, plunging stock prices and lower consumer demand tend to put a damper on mergers, and banks typically pare head count. Still, he thinks his specialty will do better than those dependent on big deals.

"Our bread and butter are deals in the $300 million to $500 million range and those deals tend to hold up a little better than the megadeals" during a downturn, he said.

In the meantime, Richert's focus is building out the bank's West Coast team. J.P. Morgan will move a group of analysts — the title given the most junior of investment bankers — there to better support the region's dealmakers. He is considering adding senior bankers in Los Angeles and the Southeast.

Despite being proud of his victories, he is taking nothing for granted. The day he spoke to CNBC, Richert says that a $5 billion company had narrowed its search to Goldman and J.P. Morgan. He can't say who will win the coveted role of lead advisor.

"We're pointing to what our capabilities are, they're pointing to theirs," Richert said. "It's this exact confluence of forces with where they're coming from and where we are."