Goldman Sachs Group
“Market Cap $75.12 B As of May 2014 At a Glance
- Industry: Investment Services
- Founded: 1869
- Country: United States
- CEO: Lloyd Blankfein
- Website: www.gs.com
- Employees: 32,900
- Sales: $39.49 B
- Headquarters: New York, New York
Forbes Lists #59 Global 2000
- #224 in Sales
- #61 in Profit
- #31 in Assets
- #111 in Market value
#79 World’s Most Valuable Brands
The Goldman Sachs Group, Inc. is a global investment banking, securities and investment management firm. It provides financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. The company operates through four segments: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. The Investment Banking segment provides a broad range of investment banking services to a diverse group of corporations, financial institutions, investment funds and governments. Its services include advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, risk management, restructurings and spin-offs, and debt and equity underwriting of public offerings and private placements and derivative transactions. The Institutional Client Services segment facilitates client transactions and markets in fixed income, equity, currency and commodity products, primarily with institutional clients such as corporations, financial institutions, investment funds and governments. It also markets and clears client transactions on major stock, options and futures exchanges worldwide and provides financing, securities lending and prime brokerage services to institutional clients. The Investing & Lending segment invests in and originates loans to provide financing to clients. It makes investments, directly and indirectly through funds that the firm manages, in debt securities, loans, public and private equity securities, real estate, consolidated investment entities and power generation facilities. The Investment Management segment provides investment management services and offers investment products across all major asset classes to a diverse set of institutional and individual clients. It also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families. The Goldman Sachs was founded by Marcus Goldman in 1869 and is headquartered in New York, NY.“
“Goldman Sachs Group History
Goldman Sachs was founded in New York in 1869 by the German-born Marcus Goldman. In 1882, Goldman’s son-in-law Samuel Sachs joined the firm. In 1885, Goldman took his son Henry and his son-in-law Ludwig Dreyfuss into the business and the firm adopted its present name, Goldman Sachs & Co. The company made a name for itself pioneering the use of commercial paper for entrepreneurs and joined the New York Stock Exchange (NYSE) in 1896. By 1898, the firm’s capital stood at $1.6 million, and was growing rapidly.
Goldman entered the IPO market in 1906 when it took Sears, Roebuck and Company public. The deal occurred due to Henry Goldman’s personal friendship with the owner of Sears, Julius Rosenwald.Other IPOs followed, including F. W. Woolworth and Continental Can.
In 1912, Henry S. Bowers became the first non-family member and non-Jew to become partner.
In 1917, under growing pressure from the other partners in the firm due to his pro-German stance, Henry Goldman resigned. Control of the firm was now in the hands of the Sachs family.
Waddill Catchings joined the company in 1918.
In 1920, the firm moved from 60 Wall Street to $1.5 million 12-storey premises on 30-32 Pine Street.
By 1928, Catchings was the Goldman parter with the single largest stake in the firm.
On December 4, 1928, the firm launched the Goldman Sachs Trading Corp. a closed-end fund. The fund failed during the Stock Market Crash of 1929, amid accusations that Goldman had engaged in share price manipulation and insider trading. Fortunately for the firm, insider trading would not be made illegal in the United States until 1934.
In 1930, the firm ousted Catchings, and Sidney Weinberg assumed the role of senior partner and shifted Goldman’s focus away from trading and towards investment banking.It was Weinberg’s actions that helped to restore some of Goldman’s tarnished reputation. On the back of Weinberg, Goldman was lead advisor on the Ford Motor Company’s IPO in 1956, which at the time was a major coup on Wall Street. Under Weinberg’s reign the firm also started an investment research division and a municipal bond department. It also was at this time that the firm became an early innovator in risk arbitrage.
Gus Levy joined the firm in the 1950s as a securities trader, which started a trend at Goldman where there would be two powers generally vying for supremacy, one from investment banking and one from securities trading. For most of the 1950s and 1960s, this would be Weinberg and Levy. Levy was a pioneer in block trading and the firm established this trend under his guidance. Due to Weinberg’s heavy influence at the firm, it formed an investment banking division in 1956 in an attempt to spread around influence and not focus it all on Weinberg.
In 1969, Levy took over as Senior Partner from Weinberg, and built Goldman’s trading franchise once again. It is Levy who is credited with Goldman’s famous philosophy of being “long-term greedy”, which implied that as long as money is made over the long term, trading losses in the short term were not to be worried about. At the same time, partners reinvested almost all of their earnings in the firm, so the focus was always on the future. That same year, Weinberg retired from the firm.
Another financial crisis for the firm occurred in 1970, when the Penn Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued through Goldman Sachs. The bankruptcy was large, and the resulting lawsuits, notably by the SEC, threatened the partnership capital, life and reputation of the firm. It was this bankruptcy that resulted in credit ratings being created for every issuer of commercial paper today by several credit rating services.
During the 1970s, the firm also expanded in several ways. Under the direction of Senior Partner Stanley R. Miller, it opened its first international office in London in 1970, and created a private wealth division along with a fixed income division in 1972. It also pioneered the “white knight” strategy in 1974 during its attempts to defend Electric Storage Battery against a hostile takeover bid from International Nickel and Goldman’s rival Morgan Stanley. This action would boost the firm’s reputation as an investment advisorbecause it pledged to no longer participate in hostile takeovers.
John L. Weinberg (the son of Sidney Weinberg), and John C. Whitehead assumed roles of co-senior partners in 1976, once again emphasizing the co-leadership at the firm. One of their initiatives was the establishment of 14 business principles that the firm still claims to apply.
On November 16, 1981, the firm acquired J. Aron & Company, a commodities trading firm which merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities. J. Aron was a player in the coffee and gold markets, and the current CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger. In 1985 it underwrote the public offering of the real estate investment trust that owned Rockefeller Center, then the largest REIT offering in history. In accordance with the beginning of the dissolution of the Soviet Union, the firm also became involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments.
In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds today. In the same year, the firm also underwrote the IPO of Microsoft, advised General Electric on its acquisition of RCA and joined the London and Tokyo stock exchanges. 1986 also was the year when Goldman became the first United States bank to rank in the top 10 of mergers and acquisitions in the United Kingdom. During the 1980s the firm became the first bank to distribute its investment research electronically and created the first public offering of original issue deep-discount bond.
Robert Rubin and Stephen Friedman assumed the Co-Senior Partnership in 1990 and pledged to focus on globalization of the firm and strengthening the Merger & Acquisition and Trading business lines. During their reign, the firm introduced paperless trading to the New York Stock Exchange and lead-managed the first-ever global debt offering by a U.S. corporation. It also launched the Goldman Sachs Commodity Index (GSCI) and opened a Beijing office in 1994.
Also in 1994, Jon Corzine assumed leadership of the firm as CEO, following the departure of Rubin and Friedman.
Another momentous event in Goldman’s history was the Mexican bailout of 1995. Rubin drew criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key distributor. On November 22, 1994, the Mexican Bolsa stock market had admitted Goldman Sachs and one other firm to operate on that market. The 1994 economic crisis in Mexico threatened to wipe out the value of Mexico’s bonds held by Goldman Sachs.
The firm joined David Rockefeller and partners in a 50–50 joint ownership of Rockefeller Center during 1994, but later sold the shares to Tishman Speyer in 2000. In 1996, Goldman was lead underwriter of the Yahoo! IPO and in 1998 it was global coordinator of the NTT DoCoMo IPO.
In 1999, Henry Paulson took over as Senior Partner.
One of the largest events in the firm’s history was its own IPO in 1999. The decision to go public was one that the partners debated for decades. In the end, Goldman decided to offer only a small portion of the company to the public, with some 48% still held by the partnership pool. 22% of the company was held by non-partner employees, and 18% was held by retired Goldman partners and two longtime investors, Sumitomo Bank Ltd. and Hawaii’s Kamehameha Activities Assn (the investing arm of Kamehameha Schools). This left approximately 12% of the company as being held by the public. With the firm’s 1999 IPO, Paulson became Chairman and CEO of the firm. As of 2009, after further stock offerings to the public, Goldman is 67% owned by institutions (such as pension funds and other banks).
In 1999, Goldman acquired Hull Trading Company, one of the world’s premier market-making firms, for $531 million. More recently, the firm has been busy both in investment banking and in trading activities. It purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000. It also advised on a debt offering for the Government of China and the first electronic offering for the World Bank. In 2003 it took a 45% stake in a joint venture with JBWere, the Australian investment bank. In 2009 The Private Wealth Management arm of JBWere was sold into a joint venture with National Australia Bank. Goldman opened a full-service broker-dealer in Brazil in 2007, after having set up an investment banking office in 1996. It expanded its investments in companies to include Burger King, McJunkin Corporation, and in January 2007, Alliance Atlantis alongside CanWest Global Communications to own sole broadcast rights to the all three CSI series. The firm is also heavily involved in energy trading, including oil, on both a principal and agent basis.
In May 2006, Paulson left the firm to serve as U.S. Treasury Secretary, and Lloyd C. Blankfein was promoted to Chairman and Chief Executive Officer. Former Goldman employees have headed the New York Stock Exchange, the World Bank, the U.S. Treasury Department, the White House staff, and firms such as Citigroup and Merrill Lynch.
Actions in the 2007–2008 mortgage crisis
During the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by short-selling subprime mortgage-backed securities. Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with being responsible for the firm’s large profits during the crisis. The pair, members of Goldman’s structured products group in New York, made a profit of $4 billion by “betting” on a collapse in the sub-prime market, and shorting mortgage-related securities. By summer 2007, they persuaded colleagues to see their point of view and convinced skeptical risk management executives. The firm initially avoided large subprime writedowns, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions. Its sizable profits made during the initial subprime mortgage crisis led the New York Times to proclaim that Goldman Sachs is without peer in the world of finance. The firm’s viability was later called into question as the crisis intensified in September 2008.
On October 15, 2007, as the crisis had begun to unravel, Allan Sloan, a senior editor for Fortune magazine, said:
So let’s reduce this macro story to human scale. Meet GSAMP Trust 2006-S3, a $494 million drop in the junk-mortgage bucket, part of the more than half-a-trillion dollars of mortgage-backed securities issued last year. We found this issue by asking mortgage mavens to pick the worst deal they knew of that had been floated by a top-tier firm – and this one’s pretty bad. It was sold by Goldman Sachs – GSAMP originally stood for Goldman Sachs Alternative Mortgage Products but now has become a name itself, like AT&T and 3M. This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust. It’s got speculators searching for quick gains in hot housing markets; it’s got loans that seem to have been made with little or no serious analysis by lenders; and finally, it’s got Wall Street, which churned out mortgage “product” because buyers wanted it. As they say on the Street, “When the ducks quack, feed them.”
On September 21, 2008, Goldman Sachs and Morgan Stanley, the last two major investment banks in the United States, both confirmed that they would become traditional bank holding companies, bringing an end to the era of investment banking on Wall Street. The Federal Reserve’s approval of their bid to become banks ended the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and capped weeks of chaos that sent Lehman Brothers into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.
According to a 2009 BrandAsset Valuator survey taken of 17,000 people nationwide, the firm’s reputation suffered in 2008 and 2009, and rival Morgan Stanley was respected more than Goldman Sachs, a reversal of the sentiment in 2006. Goldman refused to comment on the findings.
TARP and Berkshire Hathaway investment
On September 23, 2008, Berkshire Hathaway agreed to purchase $5 billion in Goldman’s preferred stock, and also received warrants to buy another $5 billion in Goldman’scommon stock, exercisable for a five-year term. Goldman also received a $10 billion preferred stock investment from the U.S. Treasury in October 2008, as part of the Troubled Asset Relief Program (TARP).
Andrew Cuomo, then Attorney General of New York, questioned Goldman’s decision to pay 953 employees bonuses of at least $1 million each after it received TARP funds in 2008. That same period, however, CEO Lloyd Blankfein and six other senior executives opted to forgo bonuses, stating they believed it was the right thing to do, in light of “the fact that we are part of an industry that’s directly associated with the ongoing economic distress”. Cuomo called the move “appropriate and prudent”, and urged the executives of other banks to follow the firm’s lead and refuse bonus payments.
In June 2009, Goldman Sachs repaid the U.S. Treasury’s TARP investment, with 23% interest (in the form of $318 million in preferred dividend payments and $1.418 billion in warrant redemptions). On March 18, 2011, Goldman Sachs acquired Federal Reserve approval to buy back Berkshire’s preferred stock in Goldman. In December 2009, Goldman announced their top 30 executives will be paid year-end bonuses in restricted stock, with clawback provisions, that must go unsold for five years.
Use of Federal Reserve’s Emergency Liquidity Programs
During the 2008 Financial Crisis, the Federal Reserve introduced a number of short-term credit and liquidity facilities to help stabilize markets. Some of the transactions under these facilities provided liquidity to institutions whose disorderly failure could have severely stressed an already fragile financial system.
Goldman Sachs was one of the heaviest users of these loan facilities, taking out numerous loans from March 18, 2008 – April 22, 2009. The Primary Dealer Credit Facility (PDCF), the first Fed facility ever to provide overnight loans to investment banks, loaned Goldman Sachs a total of $589 billion against collateral such as corporate market instruments andmortgage-backed securities. The Term Securities Lending Facility (TSLF), which allows primary dealers to borrow liquid Treasury securities for one month in exchange for less liquid collateral, loaned Goldman Sachs a total of $193 billion.
Goldman Sachs’s borrowings totaled $782 billion in hundreds of transactions over these months. This number is a total of all transactions over time and not the outstanding loan balance. The loans have been fully repaid in accordance with the terms of the facilities.
Apple corporate bond sale
In April 2013, Goldman Sachs Group Inc. together with Deutsche Bank led Apple’s largest corporate-bond deal in Apple Inc.’s history. The $17 billion offering, which was the largest bond sale on record, was Apple’s first since 1996. Goldman Sachs managed both of Apple’s previous bond offerings in the 1990s.
Goldman Sachs was the lead underwriter (lead left) for Twitter’s initial public offering in 2013. At the time, Goldman’s position as lead underwriter was considered “one of the biggest tech prizes around”.
On November 6, 2013, the day before Twitter was to be first traded on the NYSE, Goldman Sachs, as the lead left bank, issued 70 million shares of Twitter priced at $26 per share.Twitter’s shares closed on the first day of trading at $44.90 per share, up 73%. This gave Twitter a company valuation of about $31 billion.
According to regulatory filings the underwriting banks received 3.25 percent of the $1.82 billion raised by Twitter’s IPO. That came to approximately $59.2 million which was shared among the underwriters, with the lead left bank, Goldman Sachs, receiving a larger, proportionate share. Of the 70 million shares offered on November 7 in Twitter’s IPO, Goldman Sachs was responsible for placing 27 million, entitling them to 39 percent of the entire fee pool, or about $22.8 million. Chief economist and strategist at ZT Wealth said, “Goldman being the first name on the S-1 has little to do with fees. This is about Goldman rebalancing itself as a serious leader and competing with Morgan Stanley’s dominant position in technology.”
*Information from Forbes.com and Wikipedia.org
**Video published on YouTube by “Goldman Sachs“