Welcome back to “Investment Banking Insights” with Fabrizio Allegra. Our focus remains consistent in this issue: to provide crucial insights and information for conquering finance interviews. We delve deeper into understanding investment banks, decoding their core values, and exploring industry trends. Join us as we help you prepare.

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Understanding Goldman Sachs:

Goldman Sachs stands tall as one of the world’s leading financial institutions and a global powerhouse. Goldman offers a broad spectrum of financial services, including investment banking, securities underwriting, prime brokerage, asset management, as well as wealth management, and investment management. Additionally, they operate private equity funds and hedge funds. As of December 31, 2022, Goldman Sachs boasts assets under supervision exceeding $2 trillion, solidifying its position as a financial powerhouse. With a market capitalization of 111.45B, Goldman Sachs ranks as the fifth-largest investment bank by market capitalization. It is important to note that these figures don’t fully capture the extent of their financial prowess. In terms of revenue, Goldman Sachs is the second-largest investment bank in the world by revenue.

Fueling this financial giant is a diverse portfolio of subsidiaries and strategic ventures that further highlight Goldman Sachs’ influence and adaptability in the ever-evolving financial landscape.

How Does GS Make Money?

Goldman Sachs operates smoothly due to the effectiveness of its four core operations. Among these, three—global banking and markets, asset and wealth management, and platform solutions—contribute the majority of the bank's revenue. The fourth core operation, corporate treasury, oversees the management of the firm's liquidity, funding, capital, and allocation of financial resources to align with the overall strategy of the firm. Below are the third quarter 2022 earnings results, and net revenue.

Out of all 4 operations, the majority of Goldman Sachs’ revenue comes from its global banking and markets division. Goldman Sachs’ net revenue for 2023 was $46.25 billion, $36.35 billion of which comes directly from Global Banking & Markets. Within this operation, the revenue comes from investment banking fees, FICC and equities, and others.

Of the $30.00 billion, Goldman Sachs’ investment banking division was $6.22B of this, the division works with clients to help them raise capital. They achieve this through IPOs, bonds, and other types of securities. 2023 was a weaker year in IPOs with a total of 154 IPOs vs the 181 IPOs in 2022. This explains the lower revenue YoY in their banking division. For example, in 2021 Goldman Sachs raised $1.2B for SentinelOne, and made $64.3M in underwriting fees. Coupang, a South Korean e-commerce giant IPO’d in 2021 and topped a $84B market cap on their market debut. Goldman Sachs was one of the lead underwriters for the offering.

Goldman’s FICC (Fixed Income, Currency, and Commodities) and Equities division, also known as sales and trading, enables their clients to buy and sell financial products, as well as raise funding and manage risk. The FICC teams of Goldman Sachs lead transactions in a variety of assets including interest rate products (such as government bonds, treasury bills, and other highly liquid instruments), credit products, mortgages, currencies, and commodities. The equities teams handle stocks and other securities such as options and futures. FICC and Equities accounted for $23.61B of the $30.00B that global banking and markets made.

Asset & Wealth Management is Goldman’s 2nd largest revenue stream, accounting for a total of $13.88 billion in 2023. Within this sector of the bank, they provide private wealth management, consumer products, asset management, and financial planning for their clients’ careers. Ayco, a subsidiary of Goldman Sachs, provides strategies to help build wealth, protect assets, and make smart decisions about an expanded array of compensation and benefits programs.

Private wealth management involves strategies fit to the client to optimize their financial return. They offer tax planning guidance, wealth transfer strategies, investing advice, alternative investment opportunities, philanthropic solutions, and a global network of leaders and innovators. This segment typically requires clients to invest at least $10 million to open a private wealth management account. Asset management involves overseeing and growing clients’ investment portfolios using investment strategies and market insights.

Platform solutions allow clients to launch, list, and manage their ETFs using Goldman’s digital platform. Enterprise partnerships also embed financial products such as credit cards, installment financing, and high-yield savings accounts into major brands’ ecosystems to serve customers. In 2023, their net revenues from platform solutions was $2.38B which was 58% higher than 2022, reflecting that consumer platform revenue has significantly increased.

Goldman Sachs emerges as a global financial powerhouse, offering a broad spectrum of financial services and showcasing its prowess in the industry. The bank's extensive range of operations, including investment banking, securities underwriting, asset management, and wealth management, positions it among the world's leading financial institutions.

With assets under supervision surpassing $2 trillion and a market capitalization of $111.45 billion, Goldman Sachs solidifies its influence. Revenue-wise, it stands as the second-largest investment bank globally. The bank's adaptability is evident in its diverse portfolio of subsidiaries and strategic ventures, reflecting its commitment to navigating the ever-evolving financial landscape.

In essence, Goldman Sachs continues to play a pivotal role in shaping the financial landscape, leveraging its core operations and strategic initiatives.