Goldman Sachs

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The Goldman Sachs Group, Inc. (Goldman Sachs) is a bank holding company and global investment banking, securities and investment management firm that provides services worldwide to financial institutions, corporations, high-net-worth individuals, and governments. Its activities are divided into three segments: Trading and Principal Investments, Asset Management and Securities Services, and Investment Banking.

On December 11, 2007, Credit-Based Asset Servicing and Securitization LLC, a sub-prime mortgage investor, completed the sale of its Litton Loan Servicing business to Goldman Sachs. In May 2008, MBF Healthcare Partners, LP and Goldman Sachs announced the acquisition of OMNI Home Care (OMNI), a provider of skilled nursing and therapy home healthcare services. MBF Healthcare Partners, LP and Goldman Sachs will share joint ownership of OMNI. In June 2008, its division, Goldman Sachs Urban Investment Group, and Cordova, Smart & Williams, LLC announced the acquisition of H2O Plus, LLC.   

For decades, Goldman Sachs was the firm that other Wall Street firms loved to hate. It houses some of the world's biggest private equity and hedge funds. Its investment bankers are the smartest, its traders the best. They practically mint money.

But the bank was humbled along with the rest of Wall Street in 2008 when the financial markets crashed. Goldman turned itself into a commercial bank holding company in September 2008 and managed to survive Wall Street's meltdown with the help of a federal bailout. By April 2009, Goldman released that it was healthy enough that it would seek to raise new capital and return the money it had received from the government.

On July 14, it declared that it had earned second-quarter net profits of $3.44 billion, and on Oct. 15, it announced $3.19 billion more.

Some analysts are likely to welcome the news as another sign that the financial industry is stabilizing. But Goldman's performance in particular is raising questions about how its rapid return to making strong profits will be perceived by lawmakers and taxpayers who helped it with the multibillion-dollar cushion in 2008 after the nation's financial industry was shaken to its foundations.

After announcing its big profits in October 2009, Goldman went on the defensive about its bonuses, which are being doled out while the unemployment rates chugs toward 10 percent.

In part to allay criticism of its profits and bonuses, Goldman announced a $200 million contribution to its foundation, which promotes education.

Goldman also disclosed how much it had set aside for its annual bonus pool. It said that it had earmarked $5.35 billion in compensation and benefits, an increase of 84 percent from the year earlier period, putting it on course for a record payout to its executives by the end of 2009.

GOLDMAN AND THE FINANCIAL CRISIS

When the housing bust began to take its toll on Wall Street, Goldman seemed to be the firm best positioned to weather the storm. In 2007, a year when Citigroup and Merrill Lynch cast out their chief executives, Goldman booked record revenue and earnings and paid its chief, Lloyd C. Blankfein, $68.7 million - the most ever for a Wall Street C.E.O.

And as 2008 progressed, Goldman appeared to persevere through deepening economic crisis that consumed rivals Lehman Brothers and Merrill. In September, the company reported modest, though diminished, profits for the third quarter, beating expectations.

But the company was not invincible, as the credit crisis escalated later that month. American International Group, an insurance giant facing collapse due to its exposure to the mortgage crisis, was Goldman's largest trading partner. When A.I.G. received an emergency $85 billion bailout from the federal government, jittery investors and clients pulled out of Goldman, nervous that stand-alone investment banks - even one as esteemed as Goldman - might not survive. Company shares went into a free fall.

On Sept. 21, in a move that fundamentally changed the shape of Wall Street, Goldman and Morgan Stanley, the last major American investment banks, asked the Federal Reserve to change their status to bank holding companies. Goldman would now look much like a commercial bank, with significantly tighter regulations and much closer supervision by bank examiners from several government agencies.

The radical shift represented an assault on Goldman's culture and the core of its astounding returns of recent years.

Goldman received $10 billion from the federal government as part the Bush administration's $700 billion rescue of the financial industry. Goldman also benefitted from an indirect subsidy adopted by the federal government that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation.

It was the first bank to take advantage of the debt program when it was introduced in November, when the financial crisis made it nearly impossible for companies to raise cash. The program will continue to bolster scores of banks through at least the middle of 2012.

RETURN TO PROFITABILITY

On April 13, 2009, Goldman announced strong quarterly earnings and said that it would seek to raise money in the capital markets to repay the government the $10 billion it received in 2008. Goldman's chief financial officer, David A. Viniar, said that it was able to generate much of its revenue by trading "plain vanilla" investments. Margins were higher than usual, he said, in part because of the disappearance of some of Goldman's former competitors, like Bear Stearns and Lehman Brothers.

In June, the federal government allowed Goldman to return its share of the federal aid.

In July, it announced profits that comfortably beat analysts' forecasts.  Its earnings were lifted by record quarterly revenues of $6.8 billion in its fixed income, currency and commodities unit, where mortgage and other credit instruments are traded, the bank said in a statement. This business has performed well since the bank has taken on greater levels of risk since the end of 2008.

DIVISIONS

Investment Banking
Goldman Sachs provides a broad range of investment banking services to a diverse group of corporations, financial institutions, investment funds, governments and individuals.

Goldman Sachs facilitates client transactions with a diverse group of corporations, financial institutions, investment funds, governments and individuals and take proprietary positions through market making in, trading of and investing in fixed income and equity products, currencies, commodities and derivatives on these products. In addition, they engage in market-making and specialist activities on equities and options exchanges, and we clear client transactions on major stock, options and futures exchanges worldwide. In connection with their merchant banking and other investing activities, they make principal investments directly and through funds that they raise and manage.

Asset Management and Securities Services
Goldman Sachs provides investment advisory and financial planning services and offer investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse group of institutions and individuals worldwide and provide prime brokerage services, financing services and securities lending services to institutional clients, including hedge funds, mutual funds, pension funds and foundations, and to high-net-worth individuals worldwide.

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