Investment Banks – Endless Engines
You know those big banks like JPMC, Morgan Stanley, and Goldman Sachs? You know, the ones that always seem to be in the news? Well, have you ever wondered how they make all their money? Sure, you’ve heard of investment banking. That’s where they help companies raise money by issuing stocks or bonds. But that’s not their only game. Let’s discuss a major Bank : Goldman Sachs. But here’s the thing: most people think that investment banking is Goldman Sachs’ main source of revenue. And while it’s true that they do a lot of investment banking work, it’s actually not their biggest moneymaker.
So, what is the model that is so successful? Well, that’s a secret that Goldman Sachs keeps pretty close to the vest. But I’m gonna tell you anyway. So, let’s get started.
Investment Banking
Goldman Sachs’ investment banking arm is basically like a financial advisor for companies. They help companies raise money by issuing stocks or bonds, and they also provide consulting for mergers, acquisitions, and other major financial transactions.
One of the most common things that Goldman Sachs’ investment bankers do is help companies go public. This is when a private company sells shares of its stock to the public for the first time. Goldman Sachs can help companies with all aspects of the IPO process, from drafting the prospectus to marketing the shares to investors. For example, Goldman Sachs helped Airbnb go public in 2020. Airbnb is a company that allows people to rent out their homes to travelers. Before going public, Airbnb was a private company. This meant that its shares were only available to a small group of investors. By going public, Airbnb was able to sell its shares to the general public. This gave Airbnb more money to grow its business.
Goldman Sachs’ investment bankers also help companies raise money by issuing debt. This could be in the form of bonds, notes, or other types of securities. Goldman Sachs can help companies structure these debt offerings and find the right investors.
In addition to helping companies raise money, Goldman Sachs’ investment bankers also provide consulting services for mergers and acquisitions. This could involve helping companies find potential acquisition targets, negotiating the terms of the deal, or financing the transaction. For example, Goldman Sachs helped Pfizer acquire Hospira in 2015. Pfizer is a pharmaceutical company, and Hospira is a company that makes injectable drugs. By acquiring Hospira, Pfizer was able to expand its product portfolio and become a leader in the injectable drug market.
Global Markets
Goldman Sachs’ Global Markets division is responsible for more of the company’s net revenue than any other division. That’s because they act as a market maker, which means they execute transactions for clients, connecting them with a buyer or seller for their trade. They also take the other side of a transaction if a buyer or seller is not readily available.
These transactions could be for fixed income securities, equities, currencies, or commodities. For example, Goldman might help a client find someone to buy their mortgage-backed securities, help an airline reduce its risk by setting up a jet fuel hedge, or help a hedge fund set up a short sale.
Clients can also access Goldman’s investment research or execute trades through Goldman’s technology platform, Marquee. Marquee is like online banking for Goldman’s clients, and it saves the company a lot of money, since clients have their needs met online and don’t need to talk to an actual person.
Asset Management
Goldman Sachs’ Asset Management division helps big institutions manage their money. They do this by investing in a variety of assets, including stocks, bonds, real estate, and private equity. They also help clients set up mutual funds, partnerships, and other investment structures.
For example, a pension fund might approach Goldman for advice about how to allocate its portfolio. Or, a hedge fund might hire Goldman to manage its investments. Goldman can also provide financing to clients, which means they’ll lend them money to invest.
The majority of revenue Goldman receives for this segment comes from management fees, which are paid by clients in exchange for Goldman’s services. But Goldman also receives incentive fees, which are paid if the investments they manage perform well.
Consumer & Wealth Management
Goldman Sachs’ Consumer & Wealth Management segment is the company’s newest and smallest division. But don’t let that fool you, they’re growing fast and making a big splash in the financial world.
In the past, Goldman Sachs has focused on serving big companies and institutions. But in recent years, they’ve been expanding into the consumer market. In 2016, they launched an online bank called Marcus, which offers savings accounts and loans to individuals. And in 2019, they partnered with Apple to launch a new credit card.
But Goldman’s Consumer & Wealth Management segment does more than just banking. They also offer wealth management services to high-net-worth individuals, and financial wellness programs to companies through their subsidiary, The Ayco Company. While Goldman is still investing heavily in this segment, it’s already generating a significant amount of revenue.
So, there you have it. That’s how Goldman Sachs makes all its money. Or at least, that’s how they make most of their money. The company is constantly evolving and expanding into new markets, so who knows what the future holds. But one thing is for sure: Goldman Sachs is not going anywhere anytime soon.
But wait, let me end this article with a fact.
You all must have known Warren Buffett, so the thing is he was one of the investors who helped Goldman Sachs during the last economic crisis, yes, the 2008 one. He has a long history of investing in Goldman Sachs. But you know what happened in 2020? Berkshire Hathaway, Buffett’s investment company, sold 84% of its stake in Goldman Sachs. This is a significant change in strategy for Buffett, who has generally been bullish on the banking sector.
Why did he pull out of it? You can comment your theories down below.
