Goldman Sachs
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The Goldman Sachs Group, Inc. Template:Nyse (referred to as GS, or just Goldman) is one of the world's investment banks. The firm was founded in 1869. Headquartered in downtown New York City at 85 Broad Street ([1] (http://www.mapquest.com/maps/map.adp?country=US&address=85+Broad+Street+10004+&city=New+York&state=NY)), 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.
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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
Golman Sachs is divided into three different lines of business: Investment Banking, Trading and Principle Investments, and Asset Management and securities services.
Investment Banking includes traditional investment banking, and merger and aquisitions advisory. Goldman Sachs is one of the leading investment banks, topping the league tables many times, especially in equity operations. In mergers and aquisitions, 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 immensly. 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 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 area would not grow as fast as its Investment Banking area 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 stock brokerage for hedge funds which execute many trades and are very profitable to Goldman Sachs.
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] (http://www.sec.gov/litigation/litreleases/lr18113.htm)) ([3] (http://www.kiplinger.com/columns/value/archive/2003/va0429.htm)).
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 $1.4bn ([4] (http://www.sec.gov/litigation/litreleases/lr18438.htm)) in the so called "global settlement".
Criticisms against Goldman Sachs
In 2002, Goldman Sachs paid US$ 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
See also
Financial regulation, Misleading financial analysis, Corporate crime, financial bubble
External links
- Goldman Sachs website (http://www.gs.com/)
- Goldman Sachs Statement of business principles (http://www.gs.com/our_firm/the_culture/business_principles.html)
Data
- Yahoo! - The Goldman Sachs Group, Inc. Company Profile (http://biz.yahoo.com/ic/40/40176.html)
- Annual report (http://www.gs.com/our_firm/investor_relations/financial_reports/annual_reports.html)
- 10-K filed 20050208 (http://www.sec.gov/Archives/edgar/data/886982/000095012305001271/0000950123-05-001271-index.htm)
Litigation
- The prosecution and settlement of the research scandal cases (http://www.sec.gov/spotlight/globalsettlement.htm)
- SEC Final Judgment (http://www.sec.gov/litigation/litreleases/judg18113.pdf) in SEC v. Goldman, Sachs & Co.
- Appendix A (http://www.sec.gov/litigation/litreleases/finaljudgadda.pdf)
- Appendix B (http://www.sec.gov/litigation/litreleases/finaljudgaddb.pdf)
- Goldman Sachs Investor Education (http://www.sec.gov/litigation/litreleases/inved18113.pdf)
- Goldman Sachs Distribution Fund Plan Order (http://www.sec.gov/litigation/litreleases/distr18113.pdf)