View from City Road: Goldman move calls for guesswork

Punting on the bond or stock markets for its own account (proprietary trading) is one thing; but to see New York's pre-eminent investment bank metamorphosing into an entrepreneurial investor in the glamorous world of high fashion and multimedia is quite another.

Why should an investment bank such as Goldman Sachs want to become an active shareholder in the likes of Polo Ralph Lauren, the fashion house, for which it has just paid dollars 135m for a 28 per cent stake, or the near-bankrupt German television station Vox, in which it appears to be poised to take a 25 per cent holding? Since Goldman seems determined not to explain its reasoning, it is only possible to speculate.

The Lauren holding seems at first sight terminally illiquid; Ralph Lauren, the eponymous founder of Polo Ralph Lauren, and his deputy, Peter Strom, own the rest of the group's shares. They have repeatedly said they do not intend to float the group, offering Goldman no easy exit for its investment. And Vox's shareholders will need considerable reserves of energy and money, as well as the right global broadcasting connections, if the troubled station is to survive. Neither sounds like the typical terrain of cautious, return-driven, investment bankers.

Unless, of course, such holdings are a means to more mainstream banking ends. New York fashion houses are increasingly big corporations in need of lucrative advice on raising money and such like - the Lauren business would probably have a market capitalisation well in excess of dollars 500m. And their owners have the sort of glitzy social connections bankers find invaluable in drumming up business: when a vice-president of Goldman married a design manager from Lauren last year, it made the social pages of the New York Times.

Vox, too, has its uses. It is easy to see why Vox's other shareholders would welcome Goldman on board. Both Rupert Murdoch's News Corporation, with almost 50 per cent of Vox, and Bertelsmann, the German media group with just under 25 per cent, are prevented by media ownership rules from increasing their stakes, but need to find friendly hands for the rest of the equity, held in trust pending a long-term shareholder.

Mr Murdoch, like Mr Lauren, is a potentially highly valuable client - the more so now that News Corp is Australia's most profitable company, and BSkyB, in which News has a half- stake, is seen as a candidate for a pounds 4.5bn-plus flotation.

Goldman has made a big pitch to dominate the media sector in the US and Europe. It offers mouth-watering fee opportunities with the coming of cable, satellite and multimedia. In London, top-rated analysts such as Neil Blackley and Guy Lamming have been brought in. Mr Murdoch is potentially one of the sector's biggest players; small wonder if Goldman should want to keep him sweet. Not that this would be its first media investment; Goldman also owns most of Diamond Cable, Britain's 12th-biggest franchise owner.

Other recent examples abound of investment banks helping their clients with more than just advice. Recently, Schroders, the bankers, took a 50 per cent stake in a radio company alongside Emap, its publishing client. That scheme involved Schroders in no financial risk and was designed by the bank purely to finesse the radio ownership rules.

Whether those are Goldman's limited ambitions in the case of Vox remains to be seen.