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The Goldman Sachs Group, Inc. - Investment Banking -
Category Directory
(212)
902-1000
85
Broad Street
New York, N.Y. 10004
www.goldmansachs.com
Sales
$24
billion
Business Description
Goldman Sachs is a leading global investment banking, securities and
investment management firm that provides a wide range of services worldwide
to a substantial and diversified client base. As of November 28, 2003, we
operated offices in over 20 countries and approximately 34% of our 19,476
employees were based outside the United States. Goldman Sachs is the
successor to a commercial paper business founded in 1869 by Marcus Goldman.
On May 7, 1999, we converted from a partnership to a corporation and
completed an initial public offering of our common stock. Our
activities are divided into three segments:
• Investment Banking;
• Trading and Principal Investments; and
• Asset Management and Securities Services.
Investment Banking
Investment Banking represented 17% of 2003 net revenues. We provide a broad
range of investment banking services to a diverse group of corporations,
financial institutions, governments and individuals and seek to develop and
maintain long-term relationships with these clients as their lead investment
bank.
Our current structure, which is organized by regional, industry and product
groups, seeks to combine client-focused investment bankers with execution
and industry expertise. Because our businesses are global, we have adapted
our organization to meet the demands of our clients in each geographic
region. Through our commitment to teamwork, we believe that we provide
services in an integrated fashion for the benefit of our clients.
Our Investment Banking segment is divided into two components:
• Financial Advisory. Financial Advisory includes advisory assignments with
respect to mergers and acquisitions, divestitures, corporate defense
activities, restructurings and spin-offs; and
• Underwriting. Underwriting includes public offerings and private
placements of equity and debt instruments.
Financial Advisory
Goldman Sachs is a leading investment bank in worldwide mergers and
acquisitions. Our mergers and acquisitions capabilities are evidenced by our
significant share of assignments in large, complex transactions for which we
provide multiple services, including “one-stop” acquisition financing and
cross-border structuring expertise, as well as services in other areas of
the firm, such as currency hedging.
Underwriting
We underwrite a wide range of securities and other financial instruments,
including common and preferred stock, convertible and exchangeable
securities, investment-grade debt, high-yield debt, sovereign and emerging
market debt, municipal debt, bank loans, asset-backed securities and real
estate-related securities, such as mortgage-backed securities and the
securities of real estate investment trusts.
Equity Underwriting. Equity underwriting has been a long-term core strength
of Goldman Sachs. As with mergers and acquisitions, we have been
particularly successful in winning mandates for large, complex equity
underwritings. We believe our leadership in worldwide initial public
offerings and worldwide public common stock offerings reflects our expertise
in complex transactions, prior experience and distribution capabilities.
Debt Underwriting. We engage in the underwriting and origination of various
types of debt instruments, including investment-grade debt securities,
high-yield debt securities, bank and bridge loans and emerging market debt
securities, which instruments may be issued by, among others, corporate,
sovereign and agency issuers. In addition, we underwrite and originate
structured securities, which include asset-backed and mortgage-backed
securities and collateralized debt obligations. We have employed a focused
approach in debt underwriting, emphasizing high value-added areas in
servicing our clients.
Trading and Principal Investments
Trading and Principal Investments represented 65% of 2003 net revenues.
Trading and Principal Investments facilitates customer transactions with a
diverse group of corporations, financial institutions, governments and
individuals and takes proprietary positions through market making in, and
trading of, fixed income and equity products, currencies, commodities and
derivatives on such products. In addition, we engage in floor-based and
electronic market making as a specialist on U.S. equities and options
exchanges and we clear customer transactions on major stock, options and
futures exchanges worldwide. In connection with our merchant banking and
other investment activities, we make principal investments directly and
through funds that we raise and manage.
In order to meet the needs of our clients, Trading and Principal Investments
is diversified across a wide range of products. We believe our willingness
and ability to take risk distinguishes us from many of our competitors and
substantially enhances our client relationships.
Our Trading and Principal Investments segment is divided into three
components:
• Fixed Income, Currency and Commodities. We make markets in and trade
interest rate and credit products, mortgage-backed securities and loans,
currencies and commodities, structure and enter into a wide variety of
derivative transactions, and engage in proprietary trading;
• Equities. We make markets in, act as a specialist for, and trade equities
and equity-related products, structure and enter into equity derivative
transactions, and engage in proprietary trading. We also execute and clear
customer transactions on major stock, options and futures exchanges
worldwide; and
• Principal Investments. Principal Investments primarily represents net
revenues from our merchant banking investments, including the increased
share of the income and gains derived from our merchant banking funds when
the return on a fund’s investments exceeds certain threshold returns
(merchant banking overrides), as well as unrealized gains or losses on our
investment in the convertible preferred stock of Sumitomo Mitsui Financial
Group, Inc. (SMFG).
Fixed Income, Currency and Commodities and Equities
FICC and Equities are large and diversified operations through which we
engage in a variety of customer-driven and proprietary trading activities.
In their customer-driven businesses, FICC and Equities strive to deliver
high-quality service by offering broad market-making and market knowledge to
our clients on a global basis. In addition, we use our expertise to take
positions in markets, often by committing capital and taking risk, to
facilitate customer transactions and provide liquidity. Our willingness to
make markets in a broad range of fixed income, currency, commodity and
equity products and their derivatives is crucial both to our client
relationships and to support our underwriting business by providing
secondary market liquidity.
We generate trading net revenues from our customer-driven businesses in
three ways.
• First, in large, highly liquid markets, we undertake a high volume of
transactions for modest spreads and fees.
• Second, by capitalizing on our strong market relationships and capital
position, we undertake transactions in less liquid markets where spreads and
fees are generally larger.
• Finally, we generate net revenues from structuring and executing
transactions that address complex client needs.
In our proprietary activities in both FICC and Equities, we assume a variety
of risks and devote resources to identify, analyze and benefit from these
exposures. We leverage our strong proprietary research capabilities and
capitalize on our analytical models to analyze information and make informed
trading judgments. For example, as part of our FICC credit and mortgage
products businesses, we have expanded and expect to continue to expand the
extent to which we make principal investments in portfolios and single
issues of distressed debt as well as other special situation investments. In
our proprietary activities, we seek to benefit from perceived disparities in
the value of assets in the trading markets and from macroeconomic and
company-specific trends.
Although FICC and Equities involve distinct product areas, we have recently
increased coordination among their businesses. Among the steps we have taken
are to integrate, to an increasing extent, management of FICC and Equities
and to integrate the facilities and personnel of some of our FICC and
Equities businesses, especially in Europe and Asia. We have also merged
substantially all of our risk management functions for FICC and Equities. We
expect to continue to increase the integration and coordination of these
businesses in the future, as we respond to what we believe is client demand
for more centralized services and as we attempt to take advantage of
perceived synergies.
We believe that our trading and market-making capabilities are key
ingredients to our success. While these businesses have generally earned
attractive returns, we have in the past incurred significant trading losses
in periods of market turbulence, such as in 1994 and the second half of
1998, and from time to time in connection with large block trades.
In both our customer-driven and proprietary activities in FICC and Equities,
we manage our exposure to credit and other financial risks on a global basis
across all our products. Our trading risk management process seeks to
balance our ability to profit from trading positions with our exposure to
potential losses. As part of this process, we analyze not only market risk
but also credit and other financial risks. Risk management includes input
from all levels of Goldman Sachs, from the trading desks to the Firmwide
Risk Committee. For a further discussion of our risk management policies and
procedures, see “Management’s Discussion and Analysis — Risk Management” in
the 2003 Annual Report to Shareholders, which is incorporated by reference
in Part II, Items 7 and 7A of this Annual Report on Form 10-K.
FICC. FICC’s principal businesses are:
• Commodities and commodity derivatives, including our power generation
business;
• Credit products, including investment-grade corporate securities,
high-yield securities, bank loans, municipal securities, credit derivatives
and emerging market debt;
• Currencies and currency derivatives;
• Interest rate products, including interest rate derivatives and global
government securities;
• Money market instruments, including the matched book; and
• Mortgage-backed securities and loans.
A core activity in FICC is market making in a broad array of securities and
products. For example, we are a primary dealer in many of the largest
government bond markets around the world, including the United States, Japan
and the United Kingdom. We are a member of the major futures exchanges, and
also have interbank dealer status in the currency markets in New York,
London, Tokyo and Hong Kong.
Our FICC research capabilities enhance our ability to provide high-quality
products and service to our clients and include quantitative and qualitative
analyses of global economic, currency and financial market trends, as well
as credit analyses of corporate and sovereign fixed income securities.
As part of our commodities business, we recently acquired equity interests
in East Coast Power L.L.C. and Cogentrix Energy, Inc., companies engaged in
the power generation business. As of February 1, 2004, we indirectly owned
interests in 26 power plants located in the United States and one plant
located outside of the United States.
Equities. In 2003, we reorganized certain of our Equities businesses. Our
Equities principal businesses are:
• Equities Products Group;
• Exchange-Based Trading; and
• Principal Strategies.
Equities Products Group. Our equities products group (EPG) includes
primarily customer-driven activities in the shares, convertible securities
and derivatives businesses of the firm. These activities also include
clearing client transactions on major stock, options and futures exchanges
worldwide.
We trade equity securities and equity-related products (such as convertible
securities, options, futures and over-the counter (OTC) derivative
instruments) on a global basis as an agent, as a market maker or otherwise
as a principal. As a principal, we facilitate customer transactions, often
by committing capital and taking risk, to provide liquidity to clients with
large blocks of stocks or options. For example, we are active in the
execution of large block trades (trades of 50,000 or more shares).
We are a member of most of the world’s major stock, options and futures
exchanges, including those located in New York, Chicago, London, Paris,
Frankfurt, Tokyo and Hong Kong. We are a designated market maker in over
3,000 stocks traded on the Nasdaq Stock Market.
In the options and futures markets, we structure, distribute and execute
derivatives on market indices, industry groups and individual company stocks
to facilitate customer transactions and our proprietary activities. We
develop quantitative strategies and render advice with respect to portfolio
hedging and restructuring and asset allocation transactions. We also create
specially tailored instruments to enable sophisticated investors to
undertake hedging strategies and establish or liquidate investment
positions. We are one of the leading participants in the trading and
development of equity derivative instruments. We are an active participant
in the trading of futures and options on most of the major exchanges in the
United States, Europe and Asia.
Exchange-Based Trading. Our exchange-based trading business includes our
stock, option and exchange traded funds (ETF) specialist businesses. We
engage in floor-based and electronic market making as a specialist on U.S.
equities and options exchanges. In the United States, for stocks, we are one
of the leading specialists on the NYSE. For options, we are a specialist on
the American Stock Exchange, the Chicago Board Options Exchange, the
International Securities Exchange and the Philadelphia Stock Exchange. For
ETFs, we are a specialist on the American Stock Exchange and the NYSE.
Principal Strategies. Our equities principal strategies business includes
equity arbitrage, as well as other proprietary trading in equity and related
securities, including convertible securities and derivatives. Equity
arbitrage includes, among other strategies, relative value trading (which
involves trading strategies to take advantage of perceived discrepancies in
the relative value of financial instruments, including debt and equity
instruments), statistical arbitrage (which involves trading strategies based
on analyses of historical price relationships among sectors of the equities
markets) and risk arbitrage (which focuses on event-oriented special
situations such as corporate restructurings, recapitalizations, mergers and
acquisitions and legal and regulatory events).
Principal Investments
In connection with our merchant banking activities, we invest by making
principal investments directly and through funds that we raise and manage.
Principal investments also includes our investment in the convertible
preferred stock of SMFG, which we acquired on February 7, 2003.
As of November 2003, we managed private investment funds with total equity
capital commitments from our clients and from Goldman Sachs of $39.05
billion, including funded amounts; Goldman Sachs also had outstanding
commitments to invest up to $1.38 billion. The funds’ investments generate
capital appreciation or depreciation and, upon disposition, realized gains
or losses. See “— Asset Management and Securities Services — Asset
Management — Merchant Banking” for a discussion of our merchant banking
funds. As of November 2003, the aggregate carrying value of our principal
investments held directly or through our merchant banking funds was
approximately $3.76 billion. These carrying values were comprised of
corporate principal investments with an aggregate carrying value of
approximately $1.27 billion, real estate investments with an aggregate
carrying value of approximately $799 million and our investment in the
convertible preferred stock of SMFG with a carrying value of $1.68 billion.
Principal Investments includes revenues from the increased share of the
income and gains derived from our merchant banking funds when the return on
a fund’s investments exceeds certain threshold returns (typically referred
to as an “override”).
Asset Management and Securities Services
The components of the Asset Management and Securities Services segment,
which represented 18% of 2003 net revenues, are set forth below:
• Asset Management. Asset Management provides investment advisory and
financial planning services to a diverse client base of institutions and
individuals and generates revenues in the form of management and incentive
fees; and
• Securities Services. Securities Services includes prime brokerage,
financing services and securities lending, all of which generate revenues
primarily in the form of interest rate spreads or fees.
Asset Management
We offer a broad array of investment strategies, advice and planning across
all major asset classes: equity, fixed income (including money markets) and
currency and alternative investment products (i.e., investment vehicles with
non-traditional investment strategies and techniques).
Assets under management typically generate fees based on a percentage of
their value or on their performance and include our mutual funds, separate
accounts managed for institutional and individual investors, our merchant
banking funds and other alternative investment funds. We also earn trading
commissions on assets in brokerage accounts of high-net-worth individuals
(which revenues are included in the Equities component of our Trading and
Principal Investments segment), although the trend in our private wealth
management business has been away from traditional brokerage accounts that
generate commission revenue to accounts that pay fees based on the assets
under management.
Clients. Our clients are institutions, high-net-worth individuals and retail
investors. We access institutional and high-net-worth clients through both
direct and third-party channels and retail clients through third-party
channels. Our institutional clients include pension funds, governmental
organizations, corporations, insurance companies, foundations and
endowments. In the third-party distribution channels, we distribute our
mutual funds and separate managed accounts through brokerage firms, banks,
insurance companies and other financial intermediaries. Our clients are
located worldwide.
Merchant Banking. Goldman Sachs has sponsored private investment funds in
the corporate and real estate merchant banking business with $39.05 billion
of committed capital as of November 2003, of which $27.23 billion has been
funded. We have provided a portion of those amounts. See “— Trading and
Principal Investments — Principal Investments” above. Our clients, including
pension plans, endowments, charitable institutions and high-net-worth
individuals, have provided the remainder.
Our strategy with respect to our merchant banking funds generally is to
invest opportunistically to build a portfolio of investments that is
diversified by industry, product type, geographic region and transaction
structure and type. Some of these investment funds pursue, on a global
basis, long-term investments in equity and debt securities in privately
negotiated transactions, leveraged buyouts and acquisitions. As of November
2003, our corporate merchant banking funds had total committed capital of
$26.96 billion. Other funds, with total committed capital of $12.09 billion
as of November 2003, invest in real estate operating companies, debt and
equity interests in real estate assets, and other real estate-related
investments.
Merchant banking activities generate three revenue streams. First, we
receive a management fee that is generally a percentage of a fund’s
committed capital, invested capital, total gross acquisition cost or asset
value. These annual management fees are included in our Asset Management
revenues. Second, Goldman Sachs, as a substantial investor in these funds,
is allocated its proportionate share of the funds’ unrealized appreciation
or depreciation arising from changes in fair value as well as gains and
losses upon realization. Third, after the fund has achieved a minimum return
for fund investors, we receive an increased share of the fund’s income and
gains that is a percentage of the income and gains from the fund’s
investments. The second and third of these revenue streams are included in
net revenues of the Principal Investments component of our Trading and
Principal Investments segment.
Securities Services
Securities Services activities include prime brokerage, financing services
and securities lending. We provide these services to a diversified U.S. and
international customer base, including mutual funds, pension funds, hedge
funds, foundations, endowments and high-net-worth individuals.
We offer prime brokerage services to our clients, allowing them the
flexibility to trade with most brokers while maintaining a single source for
financing and consolidated portfolio reports. Our prime brokerage activities
provide clearing and custody in 50 markets (with revenues from clearing and
custody included in the Equities component of the Trading and Principal
Investments segment), consolidated multi-currency accounting and reporting
and offshore fund administration. Additionally, we provide financing to our
clients for their securities trading activities through margin and
securities loans that are collateralized by securities, cash or other
acceptable collateral held in the client’s account.
Securities lending activities principally involve the borrowing and lending
of equity securities to cover customer and Goldman Sachs’ short sales and
otherwise to make deliveries into the market. In addition, we are an active
participant in the broker-to-broker securities lending business and the
third-party agency lending business.
Global Investment Research
Our Global Investment Research Division provides fundamental research on
companies, industries, economies, currencies, commodities and portfolio and
quantitative strategy on a worldwide basis.
Global Investment Research employs a team approach that as of November 2003
provided research coverage of approximately 1,750 companies worldwide, over
50 economies and 25 stock markets. This is accomplished by six departments:
• the Americas Equity Research Department, the Europe Equity Research
Department and the Asia Equity Research Department all provide fundamental
analysis, forecasts and investment opinions for companies and industries in
their respective regions. Equity research analysts are organized regionally
by industry teams, which allows for extensive collaboration and knowledge
sharing among analysts on important investment themes;
• the Economic Research Department, which has a presence in the Americas,
Europe and Asia, formulates macroeconomic forecasts for economic activity,
foreign exchange and interest rates based on the globally coordinated views
of its regional economists;
• the Commodities Research Department, which has a presence in London and
New York, provides research on the global commodity markets; and
• the Strategy Department, which includes Portfolio and Quantitative
Strategy and has a presence in the Americas, Europe and Asia, formulates
equity market forecasts and provides opinions on both asset and industry
sector allocation.
Ticker
GS
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