Goldman Sachs Group, Inc.

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Goldman Sachs Group, Inc.
GSlogo.jpg
Founded 1869
Headquarters New York, NY
Key People David Solomon, Chairman and CEO
Products brokerage, investment banking, asset management
Website Goldman Sachs Home

Goldman Sachs (GS) is one of the world's largest investment banks and trading houses. It's a long-standing member of Wall Street's so-called "bulge bracket" of securities-industry powerhouses that includes arch-rivals Morgan Stanley, Merrill Lynch and JPMorgan Chase & Co. Like many competitors, Goldman suffered from the sub-prime mortgage meltdown in 2007 and in the following years took some hits, largely as a result of public criticism.

History[edit]

Goldman Sachs was founded in 1869 by German immigrant Marcus Goldman when he opened a commercial paper business on New York City's Pine Street.[1] The business was restructured in 1989 when the Goldman Sachs Group, LP was formed to serve as the Goldman parent company. In 1996 the Goldman Sachs Corporation, owned by a partnership of Goldman's managing directors, became the Group's sole general partner.[2]

Following that time, Goldman continued to grow its earnings and posted solid year-on-year increases in total net revenues and earnings per share in the 2005-2007 financial period.[3] Total net revenues jumped more than $10 billion from 2006 to just under $46 billion in 2007 while earnings per share rose from $19.69 to $24.73 over the same period, as investment markets prospered.

On July 1, 2014, the Financial Industry Regulatory Authority (FINRA) announced it had fined Goldman Sachs Execution & Clearing, a division of Goldman Sachs, $800,000 for failing to have policies and procedures to ensure certain clients received the best possible prices when trading in its SIGMA-X dark pool. FINRA said Goldman Sachs was unaware that it was violating the trade-through rule (also known as the Order Protection Rule) during that period, but noted that the violations were not detected "in a timely manner." Goldman returned $1.67 million to customers it had disadvantaged in 395,000 trade-throughs.[4]

2008 Financial Crisis Fallout[edit]

Goldman took a big hit in the first quarter of 2008, particularly on investment banking revenue, after mortgage and credit markets slumped worldwide in 2007. Its first-quarter '08 profit dropped 53 percent to $1.47 billion, with losses of $1 billion in mortgages and securities and another $1 billion in credit markets.[5] Goldman's profit per share for Q1 dropped from $6.67 the previous year to $3.23 in 2008. The figures nonetheless beat Wall Street expectations and the Goldman share price rose in response.

In January of 2010, it was reported that Goldman Sachs Group Inc., one of the biggest recipients of funds from the U.S. bailout of American International Group Inc., was seen by the public as favored by regulators. The assumption was made as an internal Federal Reserve Bank of New York e-mail became public.[6]

In February of 2010, Goldman Sachs Group Inc. sued seven of its former private wealth management division executives for abruptly leaving the company to join rival Credit Suisse earlier in the month.[7] Three investment professionals at the vice president level, two associates and two managers left Goldman Sachs on Feb. 5 to join Credit Suisse, which had induced the team with tens of millions of dollars for the defection, Goldman said in the court filing.

In April 2010, the Securities and Exchange Commission (SEC) accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was faltering.[8] Goldman Sachs responded in a press release posted on the company Web site, stating that the SEC’s charges "were completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."[9]

In July 2010, the SEC announced that Goldman Sachs will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.[10] In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm,[11] Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.

Goldman agreed to settle the SEC's charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933. Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.[12]

The landmark settlement also requires remedial action by Goldman in its review and approval of offerings of certain mortgage securities.

After a disappointing earnings report in 2011, Goldman cut 2,400 positions from the company.[13] The company employed nearly 35,500 people as of June 2011.[14] GS made further staff cuts in 2012. Many of the cuts were traders being replaced with new technology or back-office and operations staff who could be replaced with less expensive employees. The bank was also pushing to replace staff in high-cost areas like New York with less costly workers in Salt Lake City.[15]

In November of 2017 Goldman said it would stop serving as a market maker on U.S. options exchanges, one of a number of traditional firms that have left the business because of high costs, sluggish volume and low volatility.[16]

Cryptocurrency[edit]

Goldman Sachs has a complicated history with the cryptocurrency and blockchain space. The nearly 150-year-old brokerage announced that it was setting up a cryptocurrency trading desk during the bitcoin price explosion in December 2017, after Cboe and the CME Group originally launched their bitcoin derivatives products.[17] Despite this, Goldman has a long history of drawing the ire of the cryptocurrency community, issuing statements decrying the entire space as a speculative bubble, comparing it to the Dutch "tulipmania" of the 17th century, and even outright declaring that it is "not an asset class."[18][19][20]

Despite its previously voiced distaste for cryptocurrencies, Goldman has continued to build out its digital assets branch and, ostensibly, explore the commercial viability of cryptocurrencies, as well as - potentially - creating its own digital token (perhaps one similar to JPMorgan's JPM Coin). By Q3 of 2020, the team had grown to ten people, including Amar Amlani, former executive director in cross assets financing, and Oli Harris, former head of digital asset strategy and Quorum at JPMorgan. In August 2020, Goldman named Matthew McDermott as the new head of its digital assets business. In September 2020, cryptocurrency news outlet The Block reported that Goldman had made two new international hires for its cryptocurrency team - a vice president position in the U.K., and a research and development software engineer in Singapore.[21]

On June 18, 2021 Galaxy Digital announced that it had been selected by Goldman to provide liquidity for the bank's block trades in cryptocurrency futures. Galaxy Digital's announcement included the following statements from Max Minton, Head of Digital Assets for Goldman Sachs's Asia-Pacific Division: "Our goal is to equip our clients with best execution pricing and secure access to the assets they want to trade." and "In 2021, this now includes crypto, and we are pleased to have found a partner with a broad range of liquidity venues and differentiated derivatives capabilities spanning the cryptocurrency ecosystem to help fulfill this goal."[22]

Key People[edit]

References[edit]