Despite intensifying concerns about Wall Street's credibility, Goldman Sachs Group on Thursday bet that individual investors still want what stock analysts and investment banks are selling.
Goldman said it would buy Epoch Partners Inc., an online investment bank catering to small investors.
The Internet-based investment bank was formed in November 1999 by online brokers Charles Schwab, TD Waterhouse Group and Ameritrade Holding, and by three venture-capital firms.
For Goldman--which now deals almost entirely with institutional investors, major corporations and wealthy clients--Epoch will provide a way to distribute new stock offerings to the mass retail market. Goldman will have the exclusive right to market stock offerings to the 10 million customers of Schwab and TD Waterhouse. Those investors also will have access to Goldman's voluminous stock research.
Amid a surge in technology stocks, many individual investors complained in 1999 and early 2000 that they were shut out of hot new stock deals.
Since then, Wall Street's credibility has been hurt by allegations that some initial public offerings were rigged, and by accusations that conflicts of interest kept many Wall Street analysts from warning investors to sell overvalued stocks.
But Goldman's purchase of Epoch suggests the firm sees those controversies as fleeting. Some analysts agree.
"If you stick an IPO in front of retail investors, they're not going to shy away because they see it as a way to make easy money," said Richard Repetto, an analyst at Putnam Lovell Securities in New York.
Epoch's original goal was to give small investors access to the previously unavailable IPOs of hot technology companies.
However, the bank has participated in only 11 IPOs, and was viewed as a disappointment, analysts said.
"It was very difficult for Epoch to succeed at its mission of winning substantial positions in IPOs," said Steve McDonald, TD Waterhouse chief executive.
Terms of Goldman's purchase were not disclosed. Analysts speculated that Goldman paid a low price, and that the brokerages were happy to unload the business.
"It's a graceful exit" for the brokers, Repetto said.
Epoch has about 80 employees, at least some of whom will have to re-interview for their jobs, an Epoch spokeswoman said.
The deal also will give Goldman insight into the trading habits of small investors--which could boost its in-house trading department.
"There's now no pocket of investors that we don't have a look at," said Stuart Bernstein, head of technology capital markets at Goldman.