Tuesday, January 29, 2008

Goldman Sachs - History and Senior Managers

Goldman Sachs was founded in 1869 by German Jewish immigrant Marcus Goldman.
The company made a name for itself pioneering the use of commercial paper for entrepreneurs.
Goldman joined the New York Stock Exchange in 1896.
Goldman's son-in-law Samuel Sachs joined the firm and the name was changed to Goldman Sachs.
Goldman became a player in the Initial Public Offering market in 1906.
In 1906, it co-managed its first public offering, United Cigar Manufacturers.

The Company Co-Manages Its First IPO in 1906

In 1906, one of the firm's clients, United Cigar Manufacturers, announced its intention to expand. Goldman, Sachs, which had previously provided the company with short-term financing to maintain inventories, advised United Cigar that its capital requirements could best be met by selling shares to the public. Although Goldman, Sachs had never before managed a share offering, it succeeded in marketing $4.5 million worth of United Cigar stock; within one year United Cigar qualified for trading on the New York Stock Exchange.

On the strength of this success, Goldman, Sachs next co-managed Sears Roebuck's initial public offering (IPO) that same year. Henry Goldman was subsequently invited to join the boards of directors of both United Cigar and Sears. The practice of maintaining a Goldman partner on the boards of major clients became a tradition that continues today.

By 1920, underwrote IPOs for B.F. Goodrich and Merck.

It started the practice of recruiting MBA's degrees from leading Business Schools, and the practice still continues today.

In 1930, Sidney Weinberg assumed the role of Senior Partner and increased the role of Goldman in Investment Banking. Goldman was lead advisor on the Ford Motor Company's IPO in 1956. Weinberg also started an Investment Research division and a Municipal Bond department. The firm also started Risk Arbitrage.

Gus Levy joined the firm in the 1950s. He was a well known securities trader and under his leadership trading activity flourished in Goldman. This started a trend at Goldman of investment banking and securities trading competing for influence and power. For most of the 1950s and 1960's, the competition was between Weinberg and Levy. Levy pioneered block trading and the firm established this activity under his guidance. Goldman formed an Investment Banking Division in 1956.

In 1969, Levy took over as Senior Partner from Weinberg. Weinberg retired from the firm. He focused on trading and built Goldman's trading franchise. It is Levy who is credited with Goldman's famous philosophy of being "long term greedy," which implies that as long as money is made over the long term, trading losses in the short term are not to be worried about. Weinberg retired from the firm.

During the 1970s, the firm expanded in several ways.
Under the direction of Senior Partner Stanley R. Miller, it opened its first international office in London in 1970, and created a Private Wealth division along with a Fixed Income division in 1972. It also pioneered the "White Knight" strategy of takeover defense in 1974 during its attempts to defend Electric Storage Battery against a hostile takeover bid from International Nickel and Goldman's rival Morgan Stanley. It pledged to no longer participate in hostile takeovers.

John Weingberg and John C. Whitehead (Co-Senior Partners)

John Weinberg (the son of Sidney Weinberg), and John C. Whitehead assumed roles of Co-Senior Partners in 1976. White is an MBA grad from HBS. They established the 14 Business Principles of Goldman Sachs.

The principles are in the post http://nrao-mgmt-smi-handbook.blogspot.com/2008/01/goldman-sachs-business-principles.html

The firm acquired J. Aron & Company, a commodities trading firm which merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities. J. Aron was a major player in the coffee and gold markets.

The current CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger. (More about Blankfein in http://nrao-mgmt-smi-handbook.blogspot.com/2008/01/lloyd-blankfein-current-ceo-goldman.html)

In 1985 it underwrote the public offering of the Real Estate Investment Trust that owned Rockefeller Center, then the largest REIT offering in history. The firm got into facilitating the global privatization movement by advising companies that were spinning off from their parent governments. It happened in various european countries.

In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds today.

In 1986, it joined the London and Tokyo stock exchanges and became the first United States investment bank to rank in the top 10 of Mergers and Acquisitions in the United Kingdom. During the 1980s the firm became the first bank to distribute its investment research electronically and pioneered the first public offering of original issue deep-discount bond.

Robert Rubin and Stephen Friedman (Co-senior partnership)

Robert Rubin and Stephen Friedman assumed the Co-senior partnership in 1990 and pledged to focus on globalization of the firm.

Under their leadership reign, the firm introduced paperless trading to the New York Stock exchange and lead-managed the first-ever global debt offering by a U.S. corporation.

It launched the Goldman Sachs Commodity Index (GSCI) and opened a Beijing office in 1994.

In 1994 Jon Corzine assumed leadership of the firm following the departure of Rubin and Friedman.
The firm joined David Rockefeller and partners in a 50-50 join ownership of Rockefeller Center during 1994.
In 1998, it acted as a global coordinator of the NTT DoCoMo IPO.

In 1999, Corzine stepped down as CEO. (More about the circumstances http://nrao-mgmt-smi-handbook.blogspot.com/2008/01/stepping-down-of-jon-corzine-as-ceo-of.html)

In 1999, Henry Paulson took over as Senior Partner.

One of the landmark in the firm's history is its decision to public and its own IPO was made in 1999. The decision to go public was a tough one that went through many arguments and debates. Finally, Goldman decided to go public and to offer a small portion of the equity to the public. Around 48% is held by the famed partnership pool. 22% of the company is held by non-partner employees, and 18% is held by retired Goldman partners and two longtime investors. This leaves approximately 12% of the company for the public.

Henry Paulson became Chairman and Chief Executive Officer of the firm.

Hull Trading Company, one of the world’s premier market-making firms, was acquired by Goldman in 1999 for $531 million.

It acquired Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000.

It merged with JBWere, the Australian investment bank.
It opened a full-service broker-dealer in Brazil.

Heny Paulson joined Bush Administration. Blankfein took over as Chairman and CEO.

Subprime crisis did not affect Goldman Sachs in 2007.

In May 2006, Henry Paulson left the firm to serve as U.S. Treasury Secretary, and Lloyd Blankfein was promoted to Chairman and Chief Executive Officer.

As of 2006, Goldman Sachs employed 26,467 people worldwide.
Goldman Sachs is divided into three core businesses.
Investment banking
Investment Banking is divided into two divisions and includes Financial Advisory (mergers and acquisitions, investitures, corporate defense activities, restructurings and spin-offs) and Underwriting (public offerings and private placements of equity, equity-related and debt instruments).

Trading and Principal Investments is the largest of the three core segments, and is the company's profit center. The segment is divided into three divisions and includes Fixed Income, Currency and Commodities (trading in interest rate and credit products, mortgage-backed securities and loans, currencies and commodities, structured and derivative products), Equities (trading in equities, equity-related products, equity derivatives, structured products and executing client trades in equities, options, and Futures contracts on world markets), and Principal Investments (merchant banking investments and funds).
Trading includes market making to a large extent.

Asset management and securities services

It is separated into two divisions, and includes Asset Management, which provides large institutions and very wealthy individuals with investment advisory, financial planning services, and the management of mutual funds, as well as the so-called alternative investments (hedge funds, funds of funds, infrastructure funds, real estate funds, and private equity funds). The Securities Services division provides prime brokerage, financing services, and securities lending to mutual funds, hedge funds, pension funds, foundations, and High net worth individuals.

Sources and References

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