Goldman Sachs, one of the world's leading investment banks and financial services companies, generates money through its three principal business lines: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
Among the financial institutions that earned public notoriety during the banking crisis of 2007-08, few landed on their feet quite like Goldman Sachs (GS). The subprime mortgage fiasco simultaneously benefited and hampered the Wall Street firm, affording it unusual profits while making it a target for enormous amounts of short-term credit courtesy of the Federal Reserve.
Goldman Sachs became a net borrower and an emblem of everything diabolical about high finance. Today, the firm sits atop a landscape of fewer, but larger, investment management and banking companies, each of them adept at making money by the billions.
On July 17, 2018, Goldman Sachs named David Solomon as the new chief executive officer (CEO), succeedingLloyd Blankfein, who had run the company since 2006. The veteran investment banker took over on Oct. 1 of that year.
In 2022, Goldman Sachs generated $47.4 billion in net revenues. The company had an 10.2% ROE and 11.0% ROTE. As of Sept. 15, 2023, the firm has a market capitalization of $113 billion.
Key Takeaways
- Goldman Sachs divides its activities into three principal business lines: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions
- Goldman generated $47.4 billion in net revenues in 2022.
- Although many financial institutions were irreparably damaged as a result of the 2008 crisis, Goldman Sachs has maintained its position as a global leader.
Goldman Sachs's Business Model
Goldman Sachs, with locations all around the world, divides its operations into three segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
Global Banking & Markets
Global Banking & Markets includes investment banking fees, which includes advisory, equity, and debt underwriting fees, fixed income, commodities, and currencies (FICC), intermediation and financing activities, acquisition financing, and investing activities . Investment banking isthe service that made Goldman Sachs equal parts famous and infamous.
Goldman Sachs’ investment banking arm handled the initial public offerings for companies as diverse as meal delivery service Blue Apron (APRN), online auto marketplace CarGurus(CARG), and on-demand fuel delivery service company EzFill (EZFL).
One of Goldman Sachs’ largest IPOs was for news outlet Twitter, Inc. (now X. Corp) in 2013, which earned the firm more than $20 million. If that sounds small, it is. If that sounds too small, it isn’t.
Goldman Sachs and its partners did take a small 3.25% of the total money raised in the IPO, Goldman taking 38.5% of that amount. The firm’s intent was to handle a publicly-ballyhooed company’s initial sale for a discount in the hopes of attracting future business.
In 2022, Global Banking & Markets generated revenues of $32.5 billion, which was a 12% decline from 2021.
Asset & Wealth Management
Asset management focuses on providing services to clients to preserve and grow their wealth. Goldman generates revenues from this segment through management fees, incentive fees, equity investments, private banking and lending, and equity and debt investments.
Goldman manages client assets over a broad range of strategies, which include equity, fixed income, and alternative investments. Alternative investments include hedge funds, credit funds, private equity, currencies, real estate, and asset allocation strategies.
Asset & Wealth management brought in net revenues of $13.4 billion in 2022, a 39% decline from 2021.
Platform Solutions
Platform Solutions is a new segment for the firm after reorganizing its business into these three new segments in 2022. This segment includes consumer platforms, such as credit cards and point-of-sale financing, and the transaction banking business.
This segment saw net revenues of $1.5 billion for 2022, an increase of 134% from 2021.
Compared to many of its competitors and other prominent financial institutions, Goldman Sachs employs few people, with the 2022 employee count at 48,500.
Key Challenges and Future Plans
The 2008 financial crisis drove some large financial firms (e.g. Lehman Brothers) out of business. Others, like American International Group, Inc. (AIG) and Bank of America Corp. (BAC), survived only due to forced support from the American taxpayer.
Goldman Sachs falls somewhere in the middle. It received $10 billion through the Troubled Asset Relief Program, and even more than that indirectly through other TARP beneficiaries. Since then, Goldman Sachs is a robustcompany instead of a historical footnote.
Nonetheless, the company still faces stiff competition from a cadre of other prominent investment banks and major financial institutions. Further, regulatory measures governing investment banks are strict and always have the potential to become even more so in the future.
The COVID-19 pandemic did not hit Goldman that hard as witnessed by its 2020 performance that was better than its 2019 performance.
The company is focusing on three execution priorities for the future:
- "Maximizing wallet share and growing financing activities in Global Banking & Markets;
- Growing management and other fees in Asset & Wealth Management;
- Scaling Platform Solutions to deliver profitability."
What Exactly Does Goldman Sachs Do?
Goldman Sachs is a global investment bank and an investment management firm that provides many services to its clients. These include underwriting initial public offerings (IPOs), trading in fixed income, equity, currency, and commodity securities, investment advisory, wealth management, lending, financing, and asset management.
How Hard Is It to Get a Job at Goldman Sachs?
The difficulty in getting a job at Goldman will depend on the position being applied for. In general, being hired at Goldman is difficult as the firm is notorious for taking only the most exceptional candidates. Goldman has an acceptance rate of approximately 4%.
How Many Hours a Week Do You Work at Goldman Sachs?
The number of hours you work at Goldman Sachs will depend on the position you have at the firm. The longest hours are typically worked by junior investment bankers, those fresh out of college. These employees are known to work approximately 100 hours a week. In 2021, Goldman mandated that these employees are not to work on Saturdays any longer.
The Bottom Line
While no one can predict the future, Goldman Sachs’ short-term outlook will likely feature either continued profitability or continued government handouts, neither of which a prudent investor ought to bet against. The company is considered one of the best financial institutions in the world and has consistently proven itself financially.
