Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many international financial centers. Goldman Sachs is one of the largest investment banks in the world by revenue and is ranked 55th on the Fortune 500 list of the largest United States corporations by total revenue. In the Forbes Global 2000 of 2024, Goldman Sachs ranked 23rd. It is considered a systemically important financial institution by the Financial Stability Board.
Goldman Sachs offers services in investment banking, securities underwriting, prime brokerage, asset management, and wealth management. It is a market maker for many types of financial products and provides clearing and custodian bank services. It operates private-equity funds and hedge funds. It structures complex and tailor-made financial products. It also owns Goldman Sachs Bank USA, a direct bank. It trades both on behalf of its clients and for its own account. The company invests in and arranges financing for startups, and in many cases gets additional business as bookrunner when the companies launch initial public offerings.
History
Founding and establishment
In 1869, Goldman Sachs was founded by Marcus Goldman in New York City in a one-room basement office next to a coal chute. In 1882, Goldman's son-in-law Samuel Sachs joined the firm. In 1885, Goldman's son, Henry Goldman, and his son-in-law, Ludwig Dreyfuss, joined the business and the firm adopted its present name, Goldman Sachs & Co. The company pioneered the use of commercial paper for entrepreneurs and joined the New York Stock Exchange in 1896. By 1898, the firm's capital stood at $1.6 million. It opened offices in Boston and Chicago in 1900, San Francisco in 1918, and Philadelphia and St. Louis in 1920.Goldman entered the initial public offering market in 1906 when it took Sears, Roebuck and Company public. The deal was facilitated by Henry Goldman's personal friendship with Julius Rosenwald, an owner of Sears. Other underwriting work for IPOs followed, including those of General Cigar Company also in 1906, F. W. Woolworth Company in 1912, and Continental Can. The firm was an innovator at establishing the price–earnings ratio, instead of book value, as a method for valuing companies, and was therefore able to raise funds for retailers and companies with few hard assets.
In 1912, Henry S. Bowers became the first non-member of the founding family to become a partner of the company and share in its profits. In 1917, under growing pressure from the other partners in the firm due to his pro-German stance, Henry Goldman resigned. The Sachs family gained full control of the firm until Waddill Catchings joined the company in 1918. By 1928, Catchings was the Goldman partner with the single largest stake in the firm. In 1919, the company acquired a major interest in Merck & Co. and in 1922, it acquired a major interest in General Foods. On December 4, 1928, the firm launched the Goldman Sachs Trading Corp.Ad, a closed-end fund. The fund failed during the Wall Street Crash of 1929, amid accusations that Goldman had engaged in share price manipulation and insider trading.
1930–1980
In 1930, during the Great Depression, the firm ousted Catchings, and Sidney Weinberg assumed the role of senior partner. Weinberg shifted Goldman's focus away from trading and toward investment banking. His actions helped to restore some of Goldman's tarnished reputation. Under Weinberg's leadership, Goldman was the lead advisor on the $657 million IPO of Ford Motor Company in 1956, a major victory at the time, as well as the $350 million debenture offering by Sears Roebuck in 1958. Under Weinberg's leadership, the firm started an investment research division and a municipal bond department, and it became an early innovator in risk arbitrage.In the 1950s, Gus Levy joined the firm as a securities trader, where two powers fought for supremacy, one from investment banking and one from securities trading. Levy was a pioneer in block trading and the firm established this trend under his guidance. Due to Weinberg's heavy influence, the firm formed an investment banking division in 1956 in an attempt to shift focus off Weinberg. In 1957, the company's headquarters were relocated to 20 Broad Street, New York City.
In 1969, Levy took over Weinberg's role as Senior Partner and built Goldman's trading franchise once again. Levy is credited with Goldman's famous philosophy of being "long-term greedy," which implied that as long as money is made over the long term, short-term losses are bearable. At the same time, partners reinvested nearly all of their earnings in the firm. Weinberg remained a senior partner of the firm and died in July of that year.
Another financial crisis for the firm occurred in 1970, when the Penn Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued through Goldman Sachs. The bankruptcy was large, and the resulting lawsuits, notably by the SEC, threatened the partnership capital, survival, and reputation of the firm. It was this bankruptcy that resulted in credit ratings for every issuer of commercial paper today by several credit rating services.
Under the direction of Senior Partner Stanley R. Miller, the firm opened its first international office in London in 1970 and created a Private Wealth Management division along with a fixed income division in 1972. It pioneered the "white knight" strategy in 1974 during its attempts to defend Electric Storage Battery against a hostile takeover bid from International Nickel and Goldman's rival, Morgan Stanley. John Weinberg, the son of Sidney Weinberg, and John C. Whitehead assumed the roles of co-senior partners in 1976, once again emphasizing the co-leadership at the firm. One of their initiatives was the establishment of 14 business principles.
1981–2000
On November 16, 1981, the firm acquired J. Aron & Company, a commodities trading firm that merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities. J. Aron was involved in the coffee and gold markets. The former CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger.In 1983, the firm moved into a newly constructed global headquarters at 85 Broad Street and occupied that building until it moved to its current headquarters in 2009. In 1985, it underwrote the public offering of the real estate investment trust that owned Rockefeller Center, then the largest REIT offering in history. In accordance with the beginning of the dissolution of the Soviet Union, the firm also became involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments.
In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds. In the same year, the firm also underwrote the IPO of Microsoft, advised General Electric on its acquisition of RCA, and joined the London and Tokyo stock exchanges, where its mergers and acquisitions grew. During the 1980s, the firm became the first bank to distribute its investment research electronically and created the first public offering of original issue deep-discount bond. In 1988, it helped the State Bank of India obtain a credit rating and issue US$200 million in the US commercial paper market.
Robert Rubin and Stephen Friedman assumed the co-senior partnership in 1990 and pledged to focus on globalization of the firm to strengthen the merger & acquisition and trading business lines. In 1990, the firm introduced paperless trading to the New York Stock Exchange. Rubin left the firm in 1992 to work in the Presidency of Bill Clinton. In 1994, the company launched the Goldman Sachs Commodity Index and opened its first office in China in Beijing. That same year, Jon Corzine became CEO, following the retirement of Friedman as general partner.
Rubin had drawn criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key distributor. On November 22, 1994, the Mexican Bolsa stock market admitted Goldman Sachs and one other firm to operate on that market. In 1994, the Mexican peso crisis threatened to wipe out the value of Mexico's bonds held by Goldman Sachs.
In 1994, Goldman financed Rockefeller Center in a deal that allowed it to take an ownership interest in 1996, and sold Rockefeller Center to Tishman Speyer in 2000. In April 1996, Goldman was the lead underwriter of the IPO of Yahoo!. In 1998, it was the co-lead manager of the ¥2 trillion NTT DoCoMo IPO. In 1999, Goldman acquired Hull Trading Company for $531 million, as part of its shift towards electronic trading. After decades of debate among the partners, the company became a public company via an IPO in May 1999. Goldman sold 12.6% of the company to the public, and after the IPO, 48.3% of the company was held by 221 former partners, 21.2% of the company was held by non-partner employees, and the remaining 17.9% was held by retired Goldman partners and two long-time investors, Sumitomo Bank Ltd. and Assn, the investing arm of Kamehameha Schools. The shares were priced at $53 each at listing. After the IPO, Henry Paulson became chairman and chief executive officer, succeeding Jon Corzine.
2000–2007
In September 2000, Goldman Sachs purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion.In January 2000, Goldman, along with Lehman Brothers, was the lead manager for the first internet bond offering for the World Bank.
In 2000, Goldman Sachs advised Jim and Janet Baker on the sale of Dragon NaturallySpeaking to Lernout & Hauspie of Belgium for $580 million in L&H stock. L&H later collapsed due to accounting fraud and its stock price declined significantly. The Bakers filed a lawsuit against Goldman Sachs, alleging negligence, intentional and negligent misrepresentation, and breach of fiduciary duty since Goldman did not uncover and warn Dragon or the Bakers of the accounting problems of the acquirer, L&H. Lawyers for Goldman said it was not Goldman's job to uncover the accounting fraud. On January 23, 2013, a federal jury rejected the Bakers' claims and found Goldman Sachs not liable to the Bakers, instead siding with Goldman in counterclaims.
In March 2003, the firm took a 45% stake in a joint venture with JBWere, the Australian investment bank. In April 2003, Goldman acquired The Ayco Company L.P., a fee-based financial counseling service. In October 2003, in its Global Economics Paper No. 99, researchers at Goldman Sachs led by the economist Jim O'Neill introduced the BRIC concept, identifying the developing countries of Brazil, Russia, India, and China, as rising economic powers. In May 2006, Paulson left the firm to serve as United States Secretary of the Treasury, and Lloyd Blankfein was promoted to chairman and chief executive officer. In January 2007, Goldman, along with CanWest Global Communications, acquired Alliance Atlantis, the company with the broadcast rights to the CSI franchise.