Where do you put all of your money if you want to keep it safe? What is the place that you go to if you want to loan a large amount of money? A bank right? Banks have been around for thousands of years. In fact, it is one of the oldest industries in the world. In the beginning, they used to loan grains. But now the times have changed and the banking sector deals with all the aspects that are related to money. If you want to do anything that involves all of your money you go to a bank. When most people think about banks they only know the basic stuff that a bank does. All they know about banks is that they withdraw money from them, deposit money, or get a loan. Beyond this, not many people know what a bank can do more than those things.
Only the people who are involved in the banking sector or businesses know that there is more to it than what people know. Do you know that there are different types of bankings? Most people know only about commercial banking. But there are other types of banking like retail banking, investment banking, and others. While commercial banking involves the operations that you already know of. Investment banking deals with a different set of operations. To simply put it investment banking deals with buying and selling assets or equity of firms. These types of banks help businesses to raise capital to operate their businesses efficiently. They do this through underwritings. Investment banks also help during the mergers and acquisitions of companies. Today we are going to look at one such bank that is Goldman Sachs. This company has been around for more than a century but people don’t know much about it. In this article, you are going to learn about the business model and the way in which it makes money. But before getting into that let’s know a little bit more about the company.
What is Goldman Sachs?
As you might have already guessed Goldman Sachs is an investment bank. It is an American multinational bank that also provides financial services. This bank which is headquartered in Newyork was founded by Marcus Goldman in the year 1869. The company has been around for more than one and a half centuries. In 1882 his son-in-law joined the business and that’s how the bank got its name, Goldman Sachs. But it was not always the investment bank that you know of today. In the initial years, the company was a commercial paper business that operated out of one office. It did not venture into any kind of trading until the 1900s. It entered the IPO market in the year 1906 when it took Sears public. In 1917 Goldman had to resign from his position because of the pressure from other members of the firm. After this Sachs family got total control of the company.
In the year 1928, it started a close-end fund called Goldman Sachs trading Corp. The company had to face huge losses because of this. The fund failed when the stock market crashed. It was in 1930 the company started to shift its focus towards investment banking. All of this happened after Sydney Weinberg joined the company and became the senior partner. This not only helped the company to get profits but also helped to rebuild its reputation. The company was on its way to become a good investment bank. By the end of 1950, Goldman Sachs was one of the leading players in public trading. Goldman Sachs is the company that has done underwritings for the Ford Motor Company in 1956. Gus Levy who is the pioneer of block trading was another great addition to the company. After this, the company never looked back and even survived another financial crisis. Today Goldman Sachs is one of the biggest banking institutions in the world. It has also earned its spot in Fortune 500.
Business model of Goldman Sachs
The business model of Goldman Sachs completely depends on the services it provides. As it is already mentioned that it deals with investing and raising money all of its services revolve around them. Let’s look at the various types of services it provides for the needs of different customers.
Services offered for the organizations that want to invest money
These services deal with the management of wealth. It provides advice for organizations on things like income, tax planning, trust, estate planning, and liability management.
This is when a dealer is ready to buy or sell a security for a particular bid. The markets are made by firms in securities markets or equity-related markets. Not only that but they also make markets in industry groups, stocks of the company, financial measures, and more.
Investment management services
This deals with the management of the assets of the clients. It manages various things related to the client’s assets like alternative investments, equity, and fixed income.
These services involve security lending, prime brokerage, and financing. Every investment bank is involved in prime brokerage.
This is the study of the performance of mutual funds, stocks, and other assets. Doing this helps in knowing what investments could be done depending on the financial situation of that particular time. The research is done according to the industries, economy, currencies, and other things.
Services offered for the organizations that want to raise money
Investing and lending
The bank directly invests in privately and publicly traded securities. Apart from this it also issues loans.
Underwriting is basically done to raise capital for the firm from the investors. Here the bank provides security to the investors on behalf of the firm. Underwriting is a process where the bank is taking the financial risk to raise capital.
How does Goldman Sachs make money?
It offers a number of financial services and charges money to do it. Thus, it has multiple ways in which it makes money. Let’s look at the ways in which it makes money.
As mentioned earlier the bank is taking a financial risk during underwriting. It charges money for underwriting.
Financial advisory fees
The bank with the management of the wealth of the clients. It gives advice on making good investments as well as other things and charges some money to do so.
Investing and lending
The highest amount of money earned by Goldman Sachs is through lending and investments. It provides loans for both individuals and corporations that are wealthy. Apart from that it also invests money in stocks real estate and other things.
Fees on various services it offers
There are many services that it offers and it charges a commission for each of those services. It charges a fee for clearing and executing major stock transactions of a client. Not only that but it also charges money for originating loans, mortgages, equity products, and investment-related activities.
This is the business model of Goldman Sachs. It offers its services to large corporations and wealthy individuals. Goldman Sachs is currently one of the largest investment banks. You can learn more about other interesting business models. Click here to learn about the business model of GoDaddy.