Banking on India

By Kathleen Kingsbury

Like most popular managers, L. Brooks Entwistle, head of Goldman Sachs India, maintains an open-door policy. Entwistle admits, however, that this accessibility hasn't always been by choice. "When your entire office is a hotel room packed with desks, you can't help getting to know your colleagues," he says.

He laughs at the memory now, but those cramped quarters served as the unlikely launching pad for the investment bank's billion-dollar bet on India. Entwistle's version of sightseeing in Mumbai (formerly Bombay) is a tour of the old Goldman outposts in India's financial hub. First stop, suite 1034 at the Hilton--down the hall from a group of Thai masseuses and rotating airline crews--where Goldman set up shop in late 2005, with Entwistle as employee No. 1. Next, a second temporary home in a worn-down office building abutting a sprawling slum. When rains flooded the streets, many employees chose to stay the night rather than wade through the filthy water. Entwistle points out the Dumpster that the firm donated to the block, as well as the spot where the generator truck running the trading floor used to park. "When you're working out of a dump, you know you've really got people's loyalty," Entwistle says. Another benefit, he notes wryly: "It's not hard to get them to go out and meet clients."

The Mumbai team, assembled from around the world in just 18 months, has already managed two record deals for India's banking industry: Vodafone's $11 billion purchase of mobile-phone provider Hutchison Essar, announced in February, and ICICI Bank's $4 billion secondary public offering in June.

With an economy growing at about 8% a year and corporate earnings a robust 25%, India has become a must-see for multinational investment banks looking for big, bold corporate mergers, acquisitions and financing deals outside the U.S. The country's total market cap reached $1 trillion earlier this year, up from just $280 billion five years ago. Companies in India's technology and financial sector are booming, and the world's investment bankers are paying court. Banks used to "come to India about once a decade, get spooked and pull out," says industry analyst Janmejaya Sinha of Boston Consulting Group. This time around, "it's going to take more than parachuting in."

Goldman Sachs cut ties in March 2006 with a halfhearted joint venture it had held for more than 10 years and pledged $1 billion in investment capital for India. Entwistle says he immediately got to work convincing Mumbai's business community that Goldman is in India full force. He told them, "We've brought the boats ashore, and we're burning them."

A company like Goldman has access to plenty of talent, but shaping a team in a hot market with a lousy infrastructure required a new strategy. As more foreign banks move in and local institutions grow, salaries in India's financial-services sector, like those in the even hotter technology sector, are skyrocketing, and turnover in many firms tops 35%. Goldman "took a different approach to hiring than most multinationals," says Luis Moniz, a Mumbai-based analyst for the human-resources consultancy Heidrick & Struggles. Most rivals tried a balanced approach, with half local hires for on-the-ground expertise and half expats to maintain a connection to the head office.

Entwistle threw that logic out with last night's room service. He initially recruited the majority of his investment-banking team from other Goldman offices. They had in common a commitment to make Goldman a player in India's boom. All but two employees are of Indian descent, but they're as likely to have come from New York City, London or Tokyo as Bangalore. Their boss can rely on "a team that knows Goldman's particular systems and culture inside and out," Moniz says. "They only have to get up to speed on the local market."

Nikhil Bahel, a Goldman vice president who arrived from the bank's New York City headquarters in May 2006, says he came to India "to chase the most entrepreneurial opportunity the bank has going on right now." Sandeep Patel, head of corporate finance, hoped to be part of "something historic." Rishi Maheshwari wanted the responsibility and client interaction of a smaller office. All of them say the chance to work for Entwistle sealed the deal. Built like an aging quarterback, the 39-year-old Colorado native is a charmer. His favorite stories usually involve one of his three daughters or some bit of subcontinental trivia picked up on one of the 50 trips he's made to India from Goldman's Hong Kong office since 1998. "Brooks has a limitless passion for being here," says analyst Debanshi Basu, who transferred from Bangalore. "You know he's committed to doing great things, and you want to be part of that."

The pristine space that Entwistle eventually secured for Goldman's Mumbai headquarters--three floors in a building in the eclectic Prabhadevi neighborhood--certainly looks like the office of a serious investment bank. But it feels more like the postcollegiate playground of a Silicon Valley start-up. Meetings seem to happen as often over cubicle walls as in boardrooms. Goldman employees come back from business trips abroad with a pound of Starbucks coffee for the office. On weekends, you'll find them building houses for the poor or taking the kids to the Entwistles' for Saturday brunch. Every Monday morning, Entwistle gathers the troops. "He calls on even the most junior people to talk," says associate Anjali Talera, "and everyone's contribution is treated as equally crucial." A local hire from Merrill Lynch, Talera says that feeling is "rare in investment banking."

Goldman vice president Sunil Sanghai, whom Entwistle lured from Morgan Stanley, says these strong personal bonds translate directly into stronger client relationships. Sanghai should know. He brokered Goldman's lucrative role in the ICICI offering. "You always hear how much teamwork means at Goldman, but it's true," Sanghai says. "If a client wants research overnight, I have 2,000 bankers worldwide willing to help."

That confidence may come in handy in the next few months. The U.S.'s subprime woes will have little effect on Indian investors, who have largely avoided leveraged buyouts, unlike their U.S. counterparts, who have been relying on the now shaky credit markets to finance those deals. But if global credit markets tighten, "India won't be immune," says Ernst & Young financial-services analyst Ashvin Parekh. Foreign investors sank $98 billion into India from 2003 to 2006, according to Morgan Stanley, and every major investment bank in the world is chasing that business. Less free-flowing credit will inevitably lead to Indian companies' eyeing fewer deals and therefore to even more competition for their business. In India, commissions and fees are often less than a quarter of what they are in the West, so if foreign banks want to make money, says Alok Aggrawal, chairman of market watcher Evalueserve, they will have to go after the biggest, most profitable deals. "That's a small pool with a lot of sharks."

Such talk will hardly dampen Entwistle's plans. He's adding personnel rapidly, sometimes an employee a day. Goldman Sachs has also built relationships with Indian universities and M.B.A. programs in an effort to nourish the Goldman culture in India from the ground up. The bank plans to hire most of its India staff locally within the next few years. Previously, the only way to recruit India's top students was by offering them the chance to go abroad. "Now they don't want to miss out on what's going on at home," Entwistle says, "and we can finally offer it to them."

Not that Entwistle doesn't have grand ambitions for the team he already has. Beyond more blockbuster deals, he wants to field a group of runners in Mumbai's annual marathon next January. "Participation isn't mandatory," he says, "but I think I can convince most people to join." You'll find him at the head of the Goldman pack.