Strengths

Global Leadership Position

Goldman Sachs operates in over 30 countries including the US, Brazil, Mexico, Canada, France, Germany, Ireland, Italy, China, India, Japan, and Singapore (“The Goldman Sachs Group, Inc.- Financial”). It holds a leading position in the global banking and capital markets industry (“The Company”). It is ranked first worldwide in mergers and acquisitions for the year-to-date ending March 2012 and it is the top five leading investment banks in the world (“The Company”). It has a strong presence and brand recognition globally. Goldman Sachs had received various corporate awards including Best Investment Bank, Best Equity Hour, Best IPO House, and Best Real Estate by FinanceAsia, Asiamoney, International Financing Review and Euromoney (“The Goldman Sachs Group, Inc.-Financial”). The firm advised on a number of significant transactions that closed during the fourth quarter. Goldman Sachs’ strong market leadership help the firm deal with various risks and maintain its profitability.

Diversity of Businesses

Goldman Sachs has a well-diversified revenue stream globally, with an emphasis on recurring fee-driven businesses. With a decline in the merger and acquisition market, Goldman Sachs expanded into more diverse field within institutional client services as they expand globally in the emerging markets of China, India and Russia. In 2011, Goldman Sachs’ total revenue was coming from four different sectors of the company; 60 percent, 17.5 percent, 15.1 percent, 7.4 percent of the total revenue came from institutional client services, investment management, investment banking, and investing & lending, respectively (“The Company”). In addition, the firm’s revenue stream is broken down by geographic. 62 percent, 24.6 percent and 13.4 percent of the total revenues came from Americas, EMEA (Europe, the Middle East and Africa), and Asia, respectively (“The Company”).

Strong Balance Sheet

Goldman Sachs balance sheet has become much stronger over the last four years. The firm equity capital increased from $48 billion at the end of 2007 to $77.4 billion at the end of 2010 (“The Company”). In addition, 90 percent of the capital is in the form of common equity and average global core excess liquidity of the firm increased from $111 billion at the end of 2008 to $172 at the end of 2011.  

Weaknesses

Exposure to High-Risk Market

To meet their day-to-day operations, Goldman Sachs attains their capitals from sources such as short-term and long-term debt capital markets (“The Goldman Sachs Group, Inc.-Financial”). Goldman Sachs’ credit rating was downgraded from A to A- as of December 31,2011, which was mainly due to “the worsening of global economic conditions and increasing crisis in the financial markets” (“The Goldman Sachs Group, Inc.-Financial”). The company’s credit ratings affect the cost and availability of credit in the market. Its exposure to the Euro zone debt crisis and the sovereign bonds of European countries had cost them $56 billion.

Decline in Segmental Performance

Goldman Sachs operates through four business segments of Investment Banking, Institutional Client Services, Investing and Lending, and Investment Management. Goldman Sachs’ Investment Banking segment decreased 9 percent from 2010 to 2011. Its Institutional Client Services segment decreased 21 percent from 2010 to 2011. Its Investing and Lending segment decreased 72 percent from 2010 to 2011 (“The Goldman Sachs Group, Inc.-Financial”).

Revenue Susceptibility to Market Marking Activities 

Goldman Sachs’ revenues are highly susceptible to market making activities. Market making activity accounted for more than 70.7% of total non-interest revenues of Goldman Sachs by the end of November 2008 (“The Company”). From 2010 to 2011, the firm’s revenue declined 32 percent. This is due to the declining trend followed from the end of December 2009 and 2010. The market making declined to 58.5 percent and 40.6 percent for December 2009 and 2010, respectively (“The Company”). 

Opportunities

Resource Allocation

Goldman Sachs is currently allocating their resources to serve the market for current macroeconomic downturn and focusing on the expansion of their service offerings in developing markets. They are developing their market in China by building onshore “Investment Banking Division franchises, enhancing securities division offerings, and successfully launching investment management business (“The Goldman Sachs Group, Inc.-Financial”). Goldman Sachs looks to diversify and expand their banking operation by considering the launch of internet banking operations, which will be “closer to the core of Goldman’s overall banking strategy than retail deposits” (“The Company”). Goldman Sachs had expanded their technology staff from 16 percent employment in 2000 to 27 percent employment in 2010 (“The Goldman Sachs Group, Inc.-Financial”). The firm has the potential to further expand their technology platform in order to attract international customer.

Strategic Acquisitions

Goldman Sachs can take advantage of current market conditions and acquire assets of related businesses, which are now available at low valuations. This will provide ample growth opportunities to the company as it has proven multiple times in the company’s history.

Focus on Asset Management

Goldman Sachs, unlike many large universal banks, has actively grown their asset management businesses. They launched their onshore private wealth management business in Brazil in October 2009 and launched Dynamic Allocation Fund in February 2010 (“The Company”). The Dynamic Allocation Fund is a risk-managed, global opportunities fund designed to help investors build wealth by seeking long-term capital appreciation, dynamic diversification across multiple asset classes, and the flexibility by reduce exposure during periods of extreme market disruption. The global asset management industry is expected to exceed $120 trillion by 2013 (“The Company”).   

Emerging Market

Goldman Sachs continues to invest resources in emerging market in China, India, and Russia. According to the Credit Suisse Research Institute’s ‘Global Market Report 2011’, global wealth increased to $231 trillion from $19 trillion in 2010 (“The Goldman Sachs Group, Inc.-Financial”). The global wealth is estimated to be $345 trillion by 2016, an increase of 50 percent (“The Goldman Sachs Group, Inc.-Financial”). The firm planned to take advantage of the increase of global wealth in emerging market by strengthening and expanding their control and influence of the emerging markets in those countries by using their competitive advantages of relationships developed during the investments and expansions.  Goldman Sachs is among the only “three overseas companies that have an underwriting license” in China and had made large investment in Industrial and Commercial Bank of China Limited since 2006 (“The Company”). The firm planned to expand their investment in India through Goldman Sachs India, which holds two offices in Bangalore ad Mumbai. Goldman Sachs planned to penetrate the Russian emerging market and already have an office there aiding the process (“The Company”). 

Threats

Legal Proceedings

Goldman Sachs is currently involved in over 15 pending litigations and as of December 2011. They have lawsuits of over $15.8 billion worth mortgage securities. Most of these lawsuits in regard to mortgage securities are due to the 2008 mortgage crisis, where the market pumped to the ground when the real estate market burst. An estimation of an incur loss of $2.6 billion due to these litigations was made by the firm (“The Goldman Sachs Group, Inc.-Financial”). The loss could increase due to the broad range of the litigations and affect their financial performance (“The Company”).

Competition

Goldman Sachs competes with main competitors include Morgan Stanley, Citigroup Global Markets Holdings Inc., Fidelity Investments, Inc., Bank of America Merrill Lynch & Co., Inc., Credit Suisse Group AG on the basis of a host of factors such as “investments performance, product mix and offerings, service quality and product innovation, distribution relationships, and management fees charged (“The Goldman Sachs Group, Inc.-Financial”). The Goldman Sachs Group, Inc. is ranked fifth in the top 50 holding companies as of September 30th, 2012 (“Top 50”). It is ranked 28th in the top 150 banks worldwide ranked by asset size in 2011 (“Top150”). It is also ranked 28th in the BrandFinance Global Banking 500.

Additional Regulatory Compliance Cost

Goldman Sachs is currently meeting the requirement of Basel II regulations but will soon have to follow Basel 2.5 and Basel III guidelines, which will incur expenses in the future. Basel 2 Framework is a new set of international standards and best practices that define the minimum capital requirements for internationally active banks. In addition, it will also have to follow the Dodd-Frank Act, which focuses on similar leverage and risk-based capitals requirements as required under Basel III (“The Company”). These additional regulatory requirements will increase Goldman Sachs’ regulatory compliance costs, affecting its earnings and financial positions (“The Goldman Sachs Group, Inc.-Financial”).