What does Goldman Sachs do?
Goldman Sachs (and most Wall Street Investment Banks) does the following:
Mergers & Acquisitions Advice: When a big company buys another, they take the advice of an investment bank. For instance, when Skype received an offer from Microsoft for a buyout in 2011, they sought the help of Goldman Sachs and JP Morgan to help them get the right deal (paying $30 million fees for this). The investment bank helps value the companies and identifies the strength of each division/product. This data will help you negotiate the right price as the deals can be huge (even going over $100 billion). In return for the advice, the bank gets 0.5%-1% of the deal as a fee. Last year, Goldman made $1.7 billion in such fees. Goldman Tops M&A List as Berkshire-Heinz Signals Rebound
IPO deals and bond offerings: When companies go into the Stock Market for the first time (called an "Initial Public Offering"), investment banks such as Goldman help put together the offering. They help set the price and market it actively to their wealthy clients. This nets them a commission on the money the company raises from sales of shares of company stock to buyers in the stock markets. The commission can be as high as 7% of the total money raised. Where banks really make money on IPOs
Proprietary Trading. In the heydays of pre-2008 crash, investment banks did a lot of trading on their own. This has come down a lot after the crash, but still continues to happen. They might trade oil, bonds, stocks, buildings or gold. They could buy $100 million worth of Facebook stock, taking confidence in its research that reaches very deep. Given that they almost exclusively hire from the ivy leagues - the connections of their employees go very wide. At its peak, Goldman got two-thirds of its profits from such kind of trading. Goldman Had More Trading-Loss Days Than Morgan Stanley, Lehman
Prime Brokerage. When big institutions and Hedge Funds trade in the market, they go through a prime brokerage. The regular online broker you use to trade $10,000 in Apple (AAPL) stocks would not be able to support a $100 million hedge fund trading in oil. This is where prime brokers such as Goldman come in. Goldman Tops Global Prime Broker Rankings
Private Wealth Management. If you are a billionaire, you might not manage your own money. You call up Goldman's private wealth management division who might help you to buy a mine in Santiago or a skyscraper in Dubai. In return they take 1-1.5% of your wealth as their annual fees. Private pursuits
Distressed debt a.k.a. Vulture investing and Private Equity. If you have made a lot of loans that you cannot get repaid (i.e. your debtors are in default), you might be able to use Goldman's help. Last year, they bought a $800 million loan portfolio from a Brisbane bank who couldn't get back the loans. The bank might have sold the portfolio for less than half of its "book value" (what it's worth if every debtor was paying on time). Goldman would then use its connections - political and commercial - to collect on the loans. They might also lump up whole businesses that are on the verge of bankruptcy and then turn it around. Distressed-Debt Investors Eye Asia
Market Making: The markets are often very choppy and volatile. A few extra sales or a few extra share share purchases can change the stock price a lot. In those instances, a market makes uses their inventory of stocks in that company to provide a smoother movement. Each major stock would have its designated market maker. Goldman is a designated market maker for many stocks and makes money in the trades.
Investment Research: Goldman would analyze companies, bonds, currencies, commodities and even real estate, to help its clients identify the best investment opportunities.
Although the media makes it all sound like voodoo, most of the daily tasks they do are mundane: playing around with financial models in Excel and connecting the dots. Essentially, they try to master the information flow and use the asymmetric information & connections to help businesses be more efficient with Capital ($$).
Mergers & Acquisitions Advice: When a big company buys another, they take the advice of an investment bank. For instance, when Skype received an offer from Microsoft for a buyout in 2011, they sought the help of Goldman Sachs and JP Morgan to help them get the right deal (paying $30 million fees for this). The investment bank helps value the companies and identifies the strength of each division/product. This data will help you negotiate the right price as the deals can be huge (even going over $100 billion). In return for the advice, the bank gets 0.5%-1% of the deal as a fee. Last year, Goldman made $1.7 billion in such fees. Goldman Tops M&A List as Berkshire-Heinz Signals Rebound
IPO deals and bond offerings: When companies go into the Stock Market for the first time (called an "Initial Public Offering"), investment banks such as Goldman help put together the offering. They help set the price and market it actively to their wealthy clients. This nets them a commission on the money the company raises from sales of shares of company stock to buyers in the stock markets. The commission can be as high as 7% of the total money raised. Where banks really make money on IPOs
Proprietary Trading. In the heydays of pre-2008 crash, investment banks did a lot of trading on their own. This has come down a lot after the crash, but still continues to happen. They might trade oil, bonds, stocks, buildings or gold. They could buy $100 million worth of Facebook stock, taking confidence in its research that reaches very deep. Given that they almost exclusively hire from the ivy leagues - the connections of their employees go very wide. At its peak, Goldman got two-thirds of its profits from such kind of trading. Goldman Had More Trading-Loss Days Than Morgan Stanley, Lehman
Prime Brokerage. When big institutions and Hedge Funds trade in the market, they go through a prime brokerage. The regular online broker you use to trade $10,000 in Apple (AAPL) stocks would not be able to support a $100 million hedge fund trading in oil. This is where prime brokers such as Goldman come in. Goldman Tops Global Prime Broker Rankings
Private Wealth Management. If you are a billionaire, you might not manage your own money. You call up Goldman's private wealth management division who might help you to buy a mine in Santiago or a skyscraper in Dubai. In return they take 1-1.5% of your wealth as their annual fees. Private pursuits
Distressed debt a.k.a. Vulture investing and Private Equity. If you have made a lot of loans that you cannot get repaid (i.e. your debtors are in default), you might be able to use Goldman's help. Last year, they bought a $800 million loan portfolio from a Brisbane bank who couldn't get back the loans. The bank might have sold the portfolio for less than half of its "book value" (what it's worth if every debtor was paying on time). Goldman would then use its connections - political and commercial - to collect on the loans. They might also lump up whole businesses that are on the verge of bankruptcy and then turn it around. Distressed-Debt Investors Eye Asia
Market Making: The markets are often very choppy and volatile. A few extra sales or a few extra share share purchases can change the stock price a lot. In those instances, a market makes uses their inventory of stocks in that company to provide a smoother movement. Each major stock would have its designated market maker. Goldman is a designated market maker for many stocks and makes money in the trades.
Investment Research: Goldman would analyze companies, bonds, currencies, commodities and even real estate, to help its clients identify the best investment opportunities.
Although the media makes it all sound like voodoo, most of the daily tasks they do are mundane: playing around with financial models in Excel and connecting the dots. Essentially, they try to master the information flow and use the asymmetric information & connections to help businesses be more efficient with Capital ($$).
Comments
Post a Comment