Goldman Sachs

The Goldman Sachs Group, Inc.
Type	Public
Traded as	NYSE: GS; Dow Jones Industrial Average and S&P 500 component
Industry	Investment banking, financial services
Founded	1869, New York City
Founder	Marcus Goldman
Headquarters	200 West Street, New York City, United States
Area served	Worldwide
Key people	David M. Solomon (chairman and chief executive), John Waldron (president and chief operating officer), Denis Coleman (chief financial officer)
Services	Investment banking, securities trading, asset management, wealth management, transaction banking, consumer banking
Revenue	Approximately US$53 billion (2024)
Employees	Approximately 46,000
Website	goldmansachs.com

The Goldman Sachs Group, Inc. is an American multinational investment bank and financial services company headquartered in New York City. Founded in 1869 by Marcus Goldman, it is among the largest investment banks in the world and has been consistently ranked first or second in global mergers and acquisitions advisory for decades. It is designated a systemically important financial institution by the Financial Stability Board and has been regulated as a bank holding company since September 2008.

The firm operates through three segments: Global Banking and Markets, comprising advisory, underwriting and the trading of securities, currencies and commodities; Asset and Wealth Management; and Platform Solutions, containing the remains of a consumer banking venture the firm has largely withdrawn from. Its principal source of profit has for most of its modern history been trading on its own account and on behalf of clients, rather than the advisory business for which it is best known.

Goldman Sachs occupies a distinctive position in public discussion of finance. Its alumni have held senior government positions across several countries with unusual frequency, including three United States Treasury secretaries, the governorships of the Bank of England and the European Central Bank, and the prime ministership of Italy, a pattern that has produced both the nickname Government Sachs and persistent argument about the relationship between the firm and the institutions that regulate it. It was described in a 2009 article by Matt Taibbi in Rolling Stone as a great vampire squid wrapped around the face of humanity, a phrase that entered general use.

History

Commercial paper and the founding, 1869 to 1928

Marcus Goldman, a Bavarian immigrant who had worked as a pedlar and a shopkeeper in Philadelphia, opened a one-room office on Pine Street in Manhattan in 1869 dealing in commercial paper. Small merchants in the garment and jewellery trades held promissory notes from their customers and needed cash before those notes matured; Goldman bought the notes at a discount and sold them to banks at a smaller one, carrying them in his hat as he walked between offices.

His son-in-law Samuel Sachs joined in 1882 and the firm became M. Goldman and Sachs in 1885, and Goldman Sachs and Co. in 1888. It joined the New York Stock Exchange in 1896, and by the early twentieth century was among the largest dealers in commercial paper in the country.

Its entry into securities underwriting came through Henry Goldman, Marcus's son, who recognised that the retailers and manufacturers the firm knew through commercial paper could be taken public. Because such companies had few physical assets, the prevailing method of valuing an issue on the basis of property would not support one, and Henry Goldman argued that earning power rather than assets should determine value, a proposition now universal and then novel. The firm underwrote the initial offerings of Sears, Roebuck and Company in 1906, and subsequently of Woolworth, B. F. Goodrich, Studebaker, Continental Can and Merck, generally in partnership with Lehman Brothers.

Henry Goldman resigned in 1917 over his pro-German sympathies during the First World War, which the Sachs family, who supported the Allied cause, would not tolerate, and the partnership came under the control of Waddill Catchings and Sidney Weinberg.

The Trading Corporation and near-destruction, 1928 to 1930

In December 1928 the firm launched the Goldman Sachs Trading Corporation, a closed-end investment vehicle of a kind then fashionable, which used leverage and cross-holdings in further trusts it created, Shenandoah and Blue Ridge, in an arrangement whose complexity concealed the degree of gearing. The units were sold aggressively to the public.

The structure collapsed in the crash of 1929 and the depression that followed, losing investors substantially the whole of their money and leaving the firm facing litigation, ridicule and something close to insolvency. Its reputation was destroyed for a generation, and the episode was cited for decades afterwards, including by John Kenneth Galbraith in The Great Crash, 1929, as the outstanding example of the period's financial engineering.

Sidney Weinberg and the rebuilding, 1930 to 1969

Sidney Weinberg, who had joined the firm in 1907 as a janitor's assistant at three dollars a week and risen to partner, became senior partner in 1930 and led it for thirty-nine years. He closed the Trading Corporation, abandoned proprietary investment and rebuilt the business around investment banking and client relationships.

Weinberg's method was personal. He cultivated the chief executives of large corporations, sat on more than thirty boards, served in the War Production Board during the Second World War and advised presidents of both parties, becoming known as Mr Wall Street. The firm's relationship with Ford produced its most celebrated transaction: Weinberg spent years advising the Ford family and the Ford Foundation on how the company might be listed without losing family control, and Goldman Sachs led the 1956 initial public offering, then the largest ever, which established it definitively among the leading underwriters.

Gus Levy, who had joined in 1933 and built the firm's block trading business, succeeded Weinberg in 1969. Block trading, the practice of buying a large quantity of shares from an institution using the firm's own capital and then distributing them, was the origin of Goldman's trading culture and of the risk appetite that distinguishes it from advisory-focused competitors. Levy is credited with the phrase long-term greedy, describing a willingness to forgo immediate profit to preserve a relationship.

Whitehead, Rubin and expansion, 1976 to 1999

John Whitehead and John Weinberg, Sidney's son, became co-senior partners in 1976. Whitehead wrote the firm's Business Principles, fourteen statements beginning with the assertion that the client's interests always come first, which are still displayed in its offices and which have been quoted against it in every subsequent controversy.

The firm expanded internationally through the 1980s, opening in London and Tokyo, and built its asset management and fixed income businesses. It acquired J. Aron and Company, a commodities trader, in 1981, an acquisition that proved formative: the J. Aron partners, including Lloyd Blankfein, Gary Cohn and Mark Winkelman, brought a trading orientation that gradually displaced the advisory culture and produced a succession of the firm's leaders.

Robert Rubin and Stephen Friedman became co-chairmen in 1990. Rubin left in 1992 to serve in the Clinton administration and became Treasury Secretary in 1995, the first of the firm's senior figures to hold that office. Jon Corzine and Henry Paulson led the firm thereafter, Corzine being removed in 1999 in a partnership dispute over his advocacy of a merger and subsequently serving as a United States senator and governor of New Jersey.

Goldman Sachs was among the last major Wall Street firms to abandon partnership. It converted to a corporation and listed on the New York Stock Exchange in May 1999, raising approximately US$3.7 billion. The change was contested within the firm on the ground that partnership aligned the interests of those taking risk with those bearing it, an argument that acquired force in the following decade when the firm's leverage rose and its capital became shareholders' rather than partners'.

The financial crisis, 2007 to 2010

Goldman Sachs came through the crisis better than any comparable institution and at greater reputational cost than any except the firms that failed.

Its mortgage desk, on the recommendation of Dan Sparks and with the approval of the chief financial officer David Viniar, began reducing the firm's exposure to subprime mortgage securities in December 2006 and subsequently took substantial short positions, a change of direction documented in internal emails later published by a Senate subcommittee and referred to within the firm as getting closer to home. The firm consequently earned money in 2007 while its competitors lost it.

Two matters attracted particular criticism. The first was the collateral it demanded from AIG on credit default swaps, which contributed to that company's collapse, and the payment it then received at full contract value from the government rescue of AIG, amounting to approximately US$12.9 billion. The Federal Reserve Bank of New York, then led by Timothy Geithner, declined to negotiate a discount, a decision criticised by the Congressional Oversight Panel and by the special inspector general for the Troubled Asset Relief Program.

The second was Abacus 2007-AC1, a synthetic collateralised debt obligation the firm arranged in 2007. The hedge fund manager John Paulson, who intended to bet against the securities, participated in selecting the underlying assets, and this was not disclosed to the investors who took the other side. The U.S. Securities and Exchange Commission sued the firm for fraud in April 2010, and it settled in July for US$550 million, then the largest penalty ever paid by a Wall Street firm, acknowledging that the marketing materials contained incomplete information. A Goldman employee, Fabrice Tourre, was found liable by a jury in 2013.

The Senate Permanent Subcommittee on Investigations published a detailed report in April 2011 and referred the firm's conduct and the testimony of its executives to the Justice Department, which brought no charges. Lloyd Blankfein's remark to a British newspaper in 2009 that a banker was doing God's work, intended as a joke about the social function of allocating capital, was received as he might have anticipated.

The firm converted to a bank holding company in September 2008, alongside Morgan Stanley, which gave it access to Federal Reserve facilities and subjected it to bank regulation and capital requirements. It received US$10 billion under the Troubled Asset Relief Program, which it repaid in June 2009, and a US$5 billion investment from Berkshire Hathaway on terms favourable to Warren Buffett that signalled confidence at a critical moment.

Blankfein, Solomon and the search for stability, 2010 to 2026

Regulation after the crisis, in particular the Volcker Rule restricting proprietary trading and the substantial increase in capital required against trading assets, reduced the profitability of the activity on which the firm had depended. Its return on equity, above 30 per cent before the crisis, fell into the low teens, and the strategic problem of the following fifteen years has been to find businesses producing stable earnings that the firm is capable of running.

Its principal attempt was consumer banking. Marcus, launched in 2016, offered deposit accounts and unsecured personal loans online, and the firm subsequently issued the Apple Card from 2019 and the General Motors card, and acquired the instalment lender GreenSky in 2021 and the personal finance company Clarity Money. The venture was presented as diversification into a business with recurring revenue and a cheap deposit base.

It failed expensively. The consumer unit lost several billion dollars cumulatively, the firm proved to have underestimated the operational demands of servicing retail customers, the Apple Card relationship produced a consent order from the Consumer Financial Protection Bureau in 2024 concerning the handling of disputes and a US$89 million penalty, and the firm sold GreenSky in 2024 and agreed to transfer the Apple Card to JPMorgan Chase. David M. Solomon, who became chief executive in 2018, was criticised internally and externally over the venture and over his management style, and a period of partner departures and unattributed press briefing in 2023 was unusual for a firm that had historically kept its disputes private.

The firm's position subsequently improved. Advisory and underwriting recovered with a return of transaction activity, trading revenue proved more durable than expected, and Asset and Wealth Management grew through the accumulation of fee-paying assets, which is the firm's stated route to a more stable earnings profile. Goldman has also built a substantial alternatives business, managing private credit, private equity, real estate and infrastructure funds for clients, the area of asset management in which fees remain high.

Solomon, who performs as a disc jockey under the name D-Sol, became for a period an object of press attention disproportionate to the matter, and reduced the activity. John Waldron was appointed president and chief operating officer and is generally regarded as the likely successor.

Business

Global Banking and Markets

The largest segment combines investment banking with trading. Advisory work on mergers and acquisitions is the business for which the firm is best known and in which it has led global league tables for most of the past three decades, advising on a very large proportion of the largest transactions conducted anywhere. Underwriting covers equity and debt issuance, including initial public offerings, where Goldman's participation is treated by issuers as a signal in itself.

Trading, historically called Fixed Income, Currencies and Commodities together with Equities, provides liquidity to institutional clients in securities, derivatives, currencies and commodities, and takes positions in the course of doing so. It remains the largest single source of the firm's revenue, and its results are volatile, rising in periods of market disruption when clients need to transact and spreads widen. The firm's commodities business, inherited from J. Aron, is among the largest in the world and has attracted regulatory attention over the ownership of physical assets including metal warehouses.

Asset and Wealth Management

Goldman Sachs Asset Management manages more than US$3 trillion, across public markets and alternatives. Private wealth management serves individuals and families with very large assets, and the firm's Ayco business provides financial counselling to corporate executives.

The firm's strategy places growth in this segment at the centre, on the reasoning that management fees recur, that they require less capital than trading, and that investors value them more highly. Its alternatives business, raising funds from third parties rather than investing the firm's own balance sheet, is the principal growth vehicle.

Platform Solutions

This segment contains transaction banking, which provides cash management and payments services to corporate clients and is a genuine growth business, alongside the residual consumer activities being wound down.

Culture and people

The firm's culture is among the most studied in finance. Its partnership, retained as a title after the 1999 flotation, admits a few hundred people every two years in a process conducted with considerable ceremony, and partners participate in a compensation pool and an investment fund. The firm recruits heavily from a small number of universities, works its junior staff exceptionally hard, and has periodically been obliged to respond to internal surveys and public complaints about hours, most prominently in 2021 when a presentation by first-year analysts describing hundred-hour weeks circulated widely.

Its alumni network in government is unmatched. Robert Rubin, Henry Paulson and Steven Mnuchin served as Treasury secretaries; Mark Carney governed the Bank of Canada and the Bank of England and subsequently became Prime Minister of Canada; Mario Draghi led the European Central Bank and became Prime Minister of Italy; and former partners have held senior positions in a large number of governments and central banks. The firm regards this as evidence of the quality of its people; critics regard it as evidence of the closeness between the institution and its regulators.

Greg Smith, an executive director in the equity derivatives business, resigned in March 2012 by means of an opinion article in The New York Times headed "Why I Am Leaving Goldman Sachs", which asserted that the firm's culture had become toxic and that clients were referred to internally as muppets. The firm disputed the characterisation; the episode was widely read and contributed to the argument about whether the conversion from partnership had altered the firm's relationship with those it advises.

Diversity and employment matters

A class action alleging discrimination against women in pay and promotion, filed in 2010, was settled in 2023 for US$215 million, one of the largest such settlements in the financial industry. The firm has set targets for the representation of women and minorities among its analyst intake and among partners, and from 2020 declined to underwrite initial public offerings for companies with all-white, all-male boards in the United States and Europe, a policy it subsequently modified.

Research

Goldman Sachs Global Investment Research employs several hundred analysts covering equities, credit, economics, commodities and portfolio strategy. Its economics team has at times exercised influence beyond the firm's clients: Jim O'Neill, then head of global economics research, coined the term BRIC in a 2001 paper arguing that Brazil, Russia, India and China would come to dominate the world economy, an acronym that was subsequently adopted by the countries themselves as the name of a formal grouping, an unusual instance of a piece of investment bank research altering the organisation of international relations.

The firm's research has also been the subject of criticism and regulatory action. It was among the banks that settled with the New York attorney general and the Securities and Exchange Commission in 2003 over conflicts between research and investment banking during the internet boom, an agreement that separated the two functions and prohibited the compensation of analysts by reference to banking revenue.

Technology

Goldman Sachs employs a very large number of engineers, comprising roughly a quarter of its workforce, and has described itself at various points as a technology company, a characterisation received sceptically. Its trading systems, risk infrastructure and the SecDB database that values its positions are regarded within the industry as substantial competitive assets; SecDB, built in the 1990s, allows the firm to revalue its entire book quickly, a capability that mattered considerably during the crisis when competitors could not establish what they owned.

It has released parts of its infrastructure publicly, including the Marquee platform through which clients access its analytics and execution, and has made some internal tools open source. It has also pursued arrangements with technology companies, including the Apple Card and cloud arrangements with Amazon Web Services and Google.

Philanthropy and public programmes

The Goldman Sachs Foundation funds education and economic development. 10,000 Women, launched in 2008, provides business education and access to capital to women entrepreneurs in developing countries, and 10,000 Small Businesses, launched in 2009, provides comparable support in the United States and the United Kingdom, with a substantial evaluation literature indicating measurable effects on participants' revenue and employment.

Both programmes were begun in the immediate aftermath of the crisis, and their timing has been read as a response to the firm's reputational position as well as an expression of its stated commitments. The firm's charitable giving, funded through a portion of annual earnings, is among the larger corporate programmes in financial services, and its employees' personal political contributions have historically been divided between the two major American parties in roughly equal measure, which the firm cites as evidence of neutrality and critics as evidence of a different kind of access.

Regulation and capital

As a bank holding company, Goldman Sachs is supervised by the Federal Reserve and is subject to annual stress testing, to the Comprehensive Capital Analysis and Review and to the capital surcharge applied to globally systemically important banks. Its surcharge is among the higher ones, reflecting the complexity and interconnectedness of its trading operations, and the firm has argued publicly that the methodology penalises it disproportionately relative to institutions with larger deposit bases.

Its capital ratios have risen substantially since 2008 and its leverage is a fraction of pre-crisis levels. The Volcker Rule, adopted under the Dodd-Frank Act, prohibits proprietary trading by banks and restricts investment in hedge funds and private equity, which required the firm to close the Goldman Sachs Principal Strategies desk and to reduce its balance sheet investments in funds, redirecting that activity toward managing third-party money instead.

The question of whether the firm should be a bank at all recurs. Its conversion in 2008 was made in an emergency to obtain access to central bank liquidity, and the resulting regulation applies a framework designed for deposit-taking institutions to a business that is principally a securities dealer. The firm has neither sought nor been permitted to reverse the decision.

Financial performance

Goldman Sachs reported net revenue of approximately US$53 billion in 2024 with net earnings above US$14 billion. Its results are more volatile than those of universal banks, because they depend on transaction activity and on market conditions rather than on a stable net interest margin, and its return on equity has ranged from below 5 per cent to above 25 per cent within the past fifteen years.

Compensation is the firm's largest expense and is managed as a proportion of revenue, historically in the range of 35 to 45 per cent, which means that in poor years the cost falls with the income. The practice is a substantial part of why investment banks survive downturns that would otherwise be fatal, and a substantial part of why they attract public criticism when they do.

The firm's shares joined the Dow Jones Industrial Average in 2013 and, because that index is weighted by share price rather than market value, Goldman's high share price gives it an influence over the index disproportionate to its size.

Offices

The firm's headquarters at 200 West Street in Battery Park City, completed in 2009, is a 44-storey building designed by Pei Cobb Freed and constructed partly with tax-exempt Liberty Bonds issued to encourage development in Lower Manhattan after 2001, a financing arrangement that attracted criticism given the firm's profitability. It previously occupied 85 Broad Street.

Its principal offices outside New York are in London, at Plumtree Court in Farringdon since 2019, in Bengaluru and Hyderabad, where the firm employs a very large engineering and operations workforce, in Salt Lake City, Dallas, Warsaw, Tokyo, Hong Kong and Singapore. The growth of its Indian operations, which now employ more people than any location other than New York, reflects a movement of both technology and analytical work that has changed the geography of investment banking employment without altering where transactions are booked.

Competition

Goldman Sachs competes with Morgan Stanley, with which it is most often compared and which pursued a different post-crisis strategy of building wealth management into the majority of its business; with JPMorgan Chase, Bank of America and Citigroup, whose investment banks are attached to very large commercial banking operations providing cheap funding; with the European banks, principally Barclays, Deutsche Bank and UBS, which have lost share consistently; and with a growing set of independent advisory firms including Evercore, Centerview, Lazard and PJT, which compete for mergers and acquisitions mandates without balance sheets and without the conflicts that lending creates.

Its position is strongest where scale in risk-taking matters and where a relationship with the most senior management of a large company is decisive, and weakest where cheap funding or a broad corporate banking relationship determines the outcome. Morgan Stanley's success in wealth management, which produces stable fee income and a higher market valuation, has been the principal external comparison against which Goldman's strategy has been measured for a decade.

Controversies

Beyond the crisis, the firm has been involved in a number of significant matters.

1MDB. Goldman Sachs raised US$6.5 billion in bonds for the Malaysian state fund 1Malaysia Development Berhad between 2012 and 2013, earning approximately US$600 million in fees, an extraordinary proportion of the amount raised. A very large part of the proceeds was stolen. In October 2020 the firm reached a US$2.9 billion settlement with authorities in several countries, its Malaysian subsidiary pleaded guilty to conspiracy to violate the Foreign Corrupt Practices Act, and the firm agreed a separate US$3.9 billion settlement with Malaysia. Tim Leissner, the partner who led the transactions, pleaded guilty and cooperated; Roger Ng was convicted. The board reduced the compensation of current and former executives, including Blankfein and Solomon, by a total of approximately US$174 million, an unusual application of clawback provisions.

Greece. In 2001 the firm arranged currency swaps for the Greek government at off-market rates, which had the effect of providing financing that did not appear as debt under the accounting rules then applicable to European Union member states. The transactions were lawful and were disclosed to Eurostat only later, and they became emblematic of the arrangements by which the true condition of Greek public finances was obscured before the sovereign debt crisis.

Commodities and metals. The firm's ownership of Metro International Trade Services, an aluminium warehousing business, was the subject of litigation and congressional hearings over allegations that the movement of metal between warehouses extended queues and inflated prices. The firm sold the business in 2014.

Other matters. The firm has paid penalties over the handling of material non-public information, over research practices during the dot-com period, over the mishandling of foreign exchange trading, and over compliance failures including the use of unapproved messaging applications, a matter for which it and most of its competitors were fined in 2022.