Goldman Sachs

The Goldman Sachs Group, Inc. NYSE: GS (referred to as GS, or just Goldman) is an investment bank. The firm was founded in 1869. Headquartered in downtown New York City at 85 Broad Street ([1]), Goldman operates globally with offices in leading financial centers, e.g. New York City, Frankfurt, London, Hong Kong and Tokyo.

Goldman is mostly involved in wholesale financial services, although it has a newer and growing Private Client Services arm. Its largest area of activity is proprietary trading, that is, executing trades for its own profit with its own money. In fact, investment banking accounts for only 5 percent of Goldman's profits.

Quick facts

  • Employed 20,722 people at the end of November 2004.
  • Pre-tax earnings in the 2003 fiscal year ending November 30 were $4.445 billion.
  • The CEO is Hank Paulson.

Lines of Business

Goldman Sachs is divided into three different lines of business: Investment Banking, Trading and Principal Investments, and Asset Management and securities services.

Investment Banking includes traditional investment banking, and mergers and acquisitions (M&A) advisory. Goldman Sachs is one of the leading investment banks, topping the league tables many times, especially in equity operations. In mergers and acquisitions, it gained fame historically by advising clients on how to avoid a hostile takeover. Goldman Sachs, for a long time during the 1980s, was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased the firm's reputation immensely. This segment accounts for around 15 percent of Goldman Sach's revenues.

Trading and Principal Investments is the largest segment and profit center for Goldman. This segment consists of the revenues and profit gained from the Bank's trading activities, both on behalf of its clients and for its own account (called proprietary trading). Many trades however are done for both reasons. Most trading done by Goldman is not a "bet" of a particular outcome in the market, but rather attempting to sell something for an incrementally greater amount of money it was forced to buy something for, in the process of acting as a market maker. Like the rest of the Investment Banking industry, this occurs primarily in the bond market. Around 65 percent of Goldman's revenues and profits are from this area. Upon its IPO, Goldman predicted that this segment would not grow as fast as its Investment Banking division and would be responsible for a shrinking proportion of earnings. The opposite has been true, however.

The final segment is Asset Management and securities services. "Asset Management" is an industry term for mutual funds, of which Goldman runs many. This segment accounts for around 19 percent of Goldman's earnings. "Securities services" is mostly a reference to Prime brokerage, which is a stock brokerage for hedge funds that executes many trades and is a particularly profitable division within Goldman Sachs.

History

Goldman Sachs was founded by Marcus Goldman as a business which assisted other businesses in borrowing money via commercial paper (very short term loans). It grew organically from this base, but suffered a major setback when it setup what would be called today a giant hedge fund (Goldman Sachs Trading Co.) in 1929 which crashed in the resulting great depression. This damaged its repuation for a long time.

Sydney Weinberg became the head of Goldman Sachs. He was a relentless salesman, trying to befriend as many leaders of top businesses and governments as possible. His close friendship with the Ford family allowed Goldman Sachs to arrange for the Ford IPO, the largest in the world at that time. This was a major coup for the company which enhanced its reputation greatly. Others at Goldman realized that essentially all new business was brought in from Weinberg, and so instituted an outbound sales force to attempt to become less reliant on Weinberg. This had never been done before in investment banking.

Gustave Levy took over after Weinberg. He came from the firms trading department, and got Goldman Sachs into the business of trading for its own profit (its major source of profit today). John Whitehead and Weinbergs son next took over. They commited Goldman Sachs to expand internationally.

Alumni of Goldman Sachs

Many former partners of Goldman Sachs have gone on to hold prominent public positions including Robert Rubin the United States Secretary of the Treasury under Bill Clinton, Jon Corzine currently a United States Senator from New Jersey, and John Thain currently the CEO of the New York Stock Exchange. Also, Steven Friedman was Chairman of George W. Bush's National Economic Council, incidentally the position Rubin held before moving to Treasury.

Another former partner, Jack Ryan (Senate candidate), withdrew from his bid for the open United States Senate seat in Illinois after embarrassing allegations about his sexual past.

Apart from political careers, alumni of Goldman Sachs seek entrepreneurship and excel there:

  • J Christopher Flowers, a former partner who set up J.C. Flowers & Company, he is a member of the Forbes 400 list.
  • Edward S Lampert, a former protégé of Robert Rubin and founder of ESL Investments, is a member of the Forbes 400.

Scandals involving Goldman Sachs

Joyti De-Laurey

Joyti De-Laurey was convicted eleven to one in April 2004 by a UK jury for stealing more than £4m by forging cheques.

A spokesman for Goldman Sachs described the thefts as "gross abuse of trust and an extremely unpleasant incident for all those affected". The Financial Times called her a "queen of deceit", Scott Mead, the executive whose signature De-Laurey forged, called her a "Picasso of con-men— she was brilliant". Another previous boss of hers, Ron Beller said she was "a very clever con artist". She also worked for Jennifer Beller.

Critics have suggested that the case has been over-stated, as forging cheques does not require exceptional intelligence. Also, claims that forgeries were exceptional are questionable as another witness to the case, Ms. Sophie Pemberton, who is another employee of Mead's, stated that Mead "never signed anything" and that she regularly forged his signature.

De-Laurey's story was made into a television movie broadcast by the BBC on June 8, 2005. Titled The Secretary Who Stole £4 Million, it starred Meera Syal as Joyti De-Laurey, and featured contributions from her friends, family and co-workers.

Misleading analysis of telecommunications companies

In a statement issued by William Donaldson, chairman of the US securities and exchange commission on October 31st 2003, he said Bear Stearns, Credit Suisse First Boston, Goldman Sachs, Lehman Brothers, Merrill Lynch, Piper Jaffray, Salomon Smith Barney, and UBS Warburg (now known as UBS Securities) ("UBS") issued research reports that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts, contained exaggerated or unwarranted claims about the covered companies, and/or contained opinions for which there were no reasonable bases in violation of New York Stock Exchange ("NYSE") Rules 401, 472 and 476(a)(6), and NASD, Inc., Rules 2110 and 2210 as well as state ethics statutes.

An analyst, Craig Kloner, when asked what his three most important goals for 2000 were, said "to get more investment banking revenue" ([2]) ([3]).

The Financial Times called it "the worst financial scandal in a generation". Donaldson fined Goldman-Sachs US$110m, and the investment banks as a whole $1.4bn ([4]) in the so called "global settlement".

Criticisms against Goldman Sachs

In 2002, Goldman Sachs paid US$ 1.65 million in fines for allegedly violating e-mail record keeping requirements. In 2003, Goldman Sachs paid US$ 110 million as part of the settlement over research improprieties when New York State Attorney General, Eliot Spitzer, fined Wall Street for bad behavior. In 2003, the company agreed to pay US$ 4.3 million in restitution and a US$ 5 million in penalty related to improper trading in US Treasury Securities and futures. In 2004, Goldman Sachs agreed to pay US$ 2 million to the Securities and Exchange Commission (SEC) for settling charges of promoting an IPO before the IPO registration became effective. The SEC also alleged that Goldman Sachs spoke to the media about an IPO by PetroChina before an initial registration was filed. Goldman Sachs also raked in hundreds of millions in fees for underwriting companies like PlanetRx.com, Webvan, etc., which later went bankrupt. Spear Leeds, a firm Goldman Sachs bought in 2000 and renamed as Goldman Sachs Execution & Clearing LP, had to pay US$ 45.3 million to the National Association of Securities Dealers (NASD) in 2004 to settle charges that it traded ahead of customers. In 2005, Goldman Sachs Execution & Clearing LP was fined US$ 1 million by NASD for hiding IPO allocations from the Depository Trust Corporation.

Diversity

Goldman Sachs received a 100% rating on the Corporate Equality Index released by the Human Rights Campaign starting in 2004, the third year of the report. In addition, the company was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine.

References

Goldman Sachs: The Culture of Success. Lisa Endlich. Little, Brown and Company. 1999. ISBN 0316643734


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ISBN 0316643734. Michael Bloomberg owns 72% of the group and receives an 84.55% share of the profits, and claims credit for the same portion of its charitable giving. 1999. It was incorporated as a Delaware Limited Partnership (LP) in 1981 and has has been in business since 1983. Little, Brown and Company. Bloomberg L.P. has grown to include a global news service, including television, radio, the Internet and publications. Lisa Endlich. It provides financial news and data to financial companies and organizations in virtually every country in the world through the Bloomberg Terminal, its core money-generating product.

Goldman Sachs: The Culture of Success. Bloomberg L.P. is a financial news service founded by Michael Bloomberg in 1982. In addition, the company was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine. Goldman Sachs received a 100% rating on the Corporate Equality Index released by the Human Rights Campaign starting in 2004, the third year of the report. In 2005, Goldman Sachs Execution & Clearing LP was fined US$ 1 million by NASD for hiding IPO allocations from the Depository Trust Corporation.

Spear Leeds, a firm Goldman Sachs bought in 2000 and renamed as Goldman Sachs Execution & Clearing LP, had to pay US$ 45.3 million to the National Association of Securities Dealers (NASD) in 2004 to settle charges that it traded ahead of customers. Goldman Sachs also raked in hundreds of millions in fees for underwriting companies like PlanetRx.com, Webvan, etc., which later went bankrupt. The SEC also alleged that Goldman Sachs spoke to the media about an IPO by PetroChina before an initial registration was filed. In 2004, Goldman Sachs agreed to pay US$ 2 million to the Securities and Exchange Commission (SEC) for settling charges of promoting an IPO before the IPO registration became effective.

In 2003, the company agreed to pay US$ 4.3 million in restitution and a US$ 5 million in penalty related to improper trading in US Treasury Securities and futures. In 2003, Goldman Sachs paid US$ 110 million as part of the settlement over research improprieties when New York State Attorney General, Eliot Spitzer, fined Wall Street for bad behavior. In 2002, Goldman Sachs paid US$ 1.65 million in fines for allegedly violating e-mail record keeping requirements. Donaldson fined Goldman-Sachs US$110m, and the investment banks as a whole $1.4bn ([4]) in the so called "global settlement".

The Financial Times called it "the worst financial scandal in a generation". An analyst, Craig Kloner, when asked what his three most important goals for 2000 were, said "to get more investment banking revenue" ([2]) ([3]). In a statement issued by William Donaldson, chairman of the US securities and exchange commission on October 31st 2003, he said Bear Stearns, Credit Suisse First Boston, Goldman Sachs, Lehman Brothers, Merrill Lynch, Piper Jaffray, Salomon Smith Barney, and UBS Warburg (now known as UBS Securities) ("UBS") issued research reports that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts, contained exaggerated or unwarranted claims about the covered companies, and/or contained opinions for which there were no reasonable bases in violation of New York Stock Exchange ("NYSE") Rules 401, 472 and 476(a)(6), and NASD, Inc., Rules 2110 and 2210 as well as state ethics statutes. Titled The Secretary Who Stole £4 Million, it starred Meera Syal as Joyti De-Laurey, and featured contributions from her friends, family and co-workers.

De-Laurey's story was made into a television movie broadcast by the BBC on June 8, 2005. Sophie Pemberton, who is another employee of Mead's, stated that Mead "never signed anything" and that she regularly forged his signature. Also, claims that forgeries were exceptional are questionable as another witness to the case, Ms. Critics have suggested that the case has been over-stated, as forging cheques does not require exceptional intelligence.

She also worked for Jennifer Beller. Another previous boss of hers, Ron Beller said she was "a very clever con artist". The Financial Times called her a "queen of deceit", Scott Mead, the executive whose signature De-Laurey forged, called her a "Picasso of con-men— she was brilliant". A spokesman for Goldman Sachs described the thefts as "gross abuse of trust and an extremely unpleasant incident for all those affected".

Joyti De-Laurey was convicted eleven to one in April 2004 by a UK jury for stealing more than £4m by forging cheques. Apart from political careers, alumni of Goldman Sachs seek entrepreneurship and excel there:. Another former partner, Jack Ryan (Senate candidate), withdrew from his bid for the open United States Senate seat in Illinois after embarrassing allegations about his sexual past. Bush's National Economic Council, incidentally the position Rubin held before moving to Treasury.

Also, Steven Friedman was Chairman of George W. Many former partners of Goldman Sachs have gone on to hold prominent public positions including Robert Rubin the United States Secretary of the Treasury under Bill Clinton, Jon Corzine currently a United States Senator from New Jersey, and John Thain currently the CEO of the New York Stock Exchange. They commited Goldman Sachs to expand internationally. John Whitehead and Weinbergs son next took over.

He came from the firms trading department, and got Goldman Sachs into the business of trading for its own profit (its major source of profit today). Gustave Levy took over after Weinberg. This had never been done before in investment banking. Others at Goldman realized that essentially all new business was brought in from Weinberg, and so instituted an outbound sales force to attempt to become less reliant on Weinberg.

This was a major coup for the company which enhanced its reputation greatly. His close friendship with the Ford family allowed Goldman Sachs to arrange for the Ford IPO, the largest in the world at that time. He was a relentless salesman, trying to befriend as many leaders of top businesses and governments as possible. Sydney Weinberg became the head of Goldman Sachs.

This damaged its repuation for a long time. It grew organically from this base, but suffered a major setback when it setup what would be called today a giant hedge fund (Goldman Sachs Trading Co.) in 1929 which crashed in the resulting great depression. Goldman Sachs was founded by Marcus Goldman as a business which assisted other businesses in borrowing money via commercial paper (very short term loans). "Securities services" is mostly a reference to Prime brokerage, which is a stock brokerage for hedge funds that executes many trades and is a particularly profitable division within Goldman Sachs.

This segment accounts for around 19 percent of Goldman's earnings. "Asset Management" is an industry term for mutual funds, of which Goldman runs many. The final segment is Asset Management and securities services. The opposite has been true, however.

Upon its IPO, Goldman predicted that this segment would not grow as fast as its Investment Banking division and would be responsible for a shrinking proportion of earnings. Around 65 percent of Goldman's revenues and profits are from this area. Like the rest of the Investment Banking industry, this occurs primarily in the bond market. Most trading done by Goldman is not a "bet" of a particular outcome in the market, but rather attempting to sell something for an incrementally greater amount of money it was forced to buy something for, in the process of acting as a market maker.

Many trades however are done for both reasons. This segment consists of the revenues and profit gained from the Bank's trading activities, both on behalf of its clients and for its own account (called proprietary trading). Trading and Principal Investments is the largest segment and profit center for Goldman. This segment accounts for around 15 percent of Goldman Sach's revenues.

Goldman Sachs, for a long time during the 1980s, was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased the firm's reputation immensely. In mergers and acquisitions, it gained fame historically by advising clients on how to avoid a hostile takeover. Goldman Sachs is one of the leading investment banks, topping the league tables many times, especially in equity operations. Investment Banking includes traditional investment banking, and mergers and acquisitions (M&A) advisory.

Goldman Sachs is divided into three different lines of business: Investment Banking, Trading and Principal Investments, and Asset Management and securities services. . In fact, investment banking accounts for only 5 percent of Goldman's profits. Its largest area of activity is proprietary trading, that is, executing trades for its own profit with its own money.

Goldman is mostly involved in wholesale financial services, although it has a newer and growing Private Client Services arm. New York City, Frankfurt, London, Hong Kong and Tokyo. Headquartered in downtown New York City at 85 Broad Street ([1]), Goldman operates globally with offices in leading financial centers, e.g. The firm was founded in 1869.

NYSE: GS (referred to as GS, or just Goldman) is an investment bank. The Goldman Sachs Group, Inc. Edward S Lampert, a former protégé of Robert Rubin and founder of ESL Investments, is a member of the Forbes 400. Flowers & Company, he is a member of the Forbes 400 list.

J Christopher Flowers, a former partner who set up J.C. The CEO is Hank Paulson. Pre-tax earnings in the 2003 fiscal year ending November 30 were $4.445 billion. Employed 20,722 people at the end of November 2004.

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