Why is Goldman Sachs one

of the worlds most

admired brands?
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Table of Contents
Executive Summary
Banking Sector Overview
Credit and Equity Markets
Core Banking Sector Trends
Re-positioning for Growth
Company Considerations
Corporate Strategy
Business Model
Company Performance
Peer Comparison
Valuation
Appendix

Executive Summary
Goldman Sachs Group, Inc (NYSE: GS) is an American multinational investment bank with a diversied
business model which consistently ranked among premier nancial institutions globally
I looked at dierent aspects of the rm to identify the key value drivers for the rm and in order to
evaluate why Goldman Sachs is one of the world's most admired brands
Invests substantially in technology driven prospects to further enhance its risk management
culture
Its recruitment strategy always ensures fresh talent acquisition and retention via its expansive
and comprehensive training programs
Highest growth potential and revenue-generation among the largest US banks worldwide despite of
numerous capital restructuring and regulation
Its expansive network across various key growth drivers expose the business to a wide array of M&A
deals, investment opportunities, strong corporate ties and vast amount of resources to mitigate most
economic downturns and safeguard protability better than peers

BANKING SECTOR
OVERVIEW

Credit & Equity Market

Interest rate and equity market volatility has consistently declined since the nancial
crisis, reducing banks protability from trading
Equity market sentiment has improved consistently since 2011 as shown by S&P500
Overall cost of borrowing in US has declined and remains at historic lows since 2010

Quarterly S&P 500 and VIX Trends

Steady and stable decline in the market
volatility since 2011
2013 -2014 period saw increased
revenues from banks, followed by sharp
decline as volatility increased
Interest rates predicted to increase
gradually to ease short term inationary
pressure from increased economic
activity
Credit will be easier to obtain and short
term cost of borrowing will remain
stable until 2016, rising gradually
thereafter

Core Banking Sector Trends

Investment banks shed 'non-core' business to cut costs
Fixed income, Currencies and Commodities (FICC) trading
revenues face structural pressure
M&A advisory & Wealth Management performance improving
Firms embrace larger roles for risk managers (CFO post
established)
Compliance reporting better integrated with risk reporting tools
Cyberthreats gain prominence leading to investment in
infrastructure and operations
Increased attention to funding sources to improve falling
capital-asset ratio

COMPANY
CONSIDERATIONS

GS Corporate Strategy

1.
2.
3.
4.
5.

Reposition revenue streams

Enhance balance sheet eciency
Reinforce risk management policies/risk culture
Invest substantially in technology and data
Client Value Optimisation

1. Reposition Revenue streams

Continued transition towards models relying on capital-light and
expertise driven avenue
Investing in talent is crucial
Collateral management, regulatory reporting and online data
services to increase client transparency

2. Balance Sheet Efficiency

Reassess capital consuming business lines (Fixed Income
trading) already weakened by the Volcker Rule
Shift focus on wealth management in line with LCR
requirement for more stability. IM takes precedence going
forward.

3. Risk Management Policies / Risk Culture

Aggregation of risk across departments, investment in analytics
and strengthening risk mindedness.
Integrating risk management and ethical goals into
compensation.
Client and Business Standards Committee focused on averting
reputation risk from which all other risks follow.
4 & 5. Technology, Data and Client Value Optimisation
Work closely with companies at the forefront of technology
driven transformation
Investing on 3-D printing, big data solutions and software dened
network (SDN) providing new revenue streams to bolster current
prot margins

Business Model
1. Investment Banking
Signicant nancier and advisor in M&A and underwriting
Ranked rst in both announced and completed global M&A deals
Lead-left bookrunner for nearly twice as many technology IPOs in
the US than the next most active underwriter
2. Institutional Client Services
Facilitate client transactions in xed income and currency
markets
Specially tailored instruments to enable sophisticated investors
to establish investment positions and undertake hedging
strategies for clients
Global Investment Research division established to
provide fundamental research on all major asset classes

3. Investment & Lending

Make investments directly and indirectly via internally managed funds
Recently expanded by $50 billion in new assets from acquisition of
Dwight Asset Management and Deutsche Banks stable value business
GS Special Situations Group raised $US 863 million for the purchase of
Australian rm Suncorp, biggest distressed lending deal in 2013

4. Investment Management
Provide customized investment advisory solutions designed to
address clients investment needs
The AW mutual fund performance has been above the industry average
for nine consecutive quarters through 2013 with net AUM at $41 billion,
highest since 2007
Oer comprehensive wealth advisory services and
portfolio management

Peer Comparison- Selected Firms

Text

Share Price Performance vs

Competitors (Last 12 Months)

Company Performance
1st in global M&A advisor and lead
book runner across major asset
classes 2013,2014
Top 2 in global equity underwriting
strong growth outlook in investment
banking services oer secure and
high growth potential for the future
Most successful foreign investment
bank in Malaysia, acquiring 23% of its
investment banking segment, double
that of its nearest rival

2014 Global Performance

Figure Source: Deloitte Research, 2014

5 Year Market Outlook

With growth in US market

performance positive, M&A likely
to do well
50% increase in activity as
technology IPOs favoured to
increase in the next decade
Decline in overall revenues for
investment banks likely to be
temporary rather than structural

Only banking revenues will be

aected
Costs not included as cost distinction
dicult in 5 year growth model

GS revenues will grow by 5% y/y,

particularly with asset
management and increased
trading

GS GROWTH
STRATEGY

Technology
Technology is the largest division of Goldman Sachs, representing over a quarter
of the rm (8,000 headcount) - larger than many pure tech rms
A proprietary programming language and database platform, open-source Java
collections library and software development lifecycle
Daily risk calculations use a total of 47,000 CPUs to process more than 10 billion
prices and execute more than 2.5 quintillion 64-bit instructions
Goldman Sachs University - focuses on in house training on advanced
technology, cross cultural management and soft skills training
Its superior proprietary technology systems and research department enable
development of complex nancial securities that permit them to take on more
risk

Energy
$40 billion investment into established and emerging energy sectors over next 10
years.
Emphasis on renewable energy sector - Investment of $320 million in Indian wind
energy ReNew Power to harness wind energy
Facilitated a $495 million IPO of NRG Energy, with portion of the proceeds
reinvested into the future of the industry
Oers expert advice on investment and nancing opportunities for shale oil
production
industrial and manufacturing
transportation
smart grid networks

Entrepreneurship
Philanthropic engagements centred around 4 principles;
Core business alignment focused on economic growth and community
engagement
Establish networks of nonprot and education partners with world class
experience and expertise
Measure results to ensure maximum success
Engage time and talent of people at Goldman Sachs at all levels of the rm
10,000 women - 5 year, $100 million initiative for women entrepreneurs
10,000 small businesses - $500 million investment active in 15 markets across
the US
Goldman Sachs Gives - $667 million in 3,600 charities across 35 countries
Community TeamWorks - a volunteering initiative

Risk Management
Avoided the large losses its peers suered in 2008 - evidence that its risk based
culture depicts superior performance
Reduced its leverage ratio from 25.2 (2007) to 11 (2014), one of the lowest risk
proles among investment banks
The Partnership Heritage, allowed for prudent stewardship of the rm's capital
(80% partner ownership since 1869)
Investment in risk and quantitative professionals free to debate on risk issues
freely without fear of sanctions since 1980
First bank to introduce quantitative analysis into risk management models
Establishment of a rm-wide risk committee in 2007 - meets weekly to discuss
risks across all its aliates worldwide on a daily basis

RECRUITMENT

Goldman Sachs workers are its

greatest assets
Best paying banks for Vice
President positions, 2nd in
nancial analyst positions
Only investment banking rm with
the highest employee
remuneration packages
One of only 5 companies to be
recognized every year that the
Great Place to Work Institute has
issued its list since 1984

Company Awards and Employee

recognition
1st choice for bankers; leads Morgan Stanley (5th) and JP Morgan (9th) in
Glassdoor's 25 Best Banks to Work report, an anonymous website for employee
reviews and ratings
Other notable awards and outstanding employee recognition:
Universum: World's Most Attractive Employer - Global Top 50 and 8th among
business students
Vault: Top 50 Banking Employers - 1st in US and UK and 2nd overall
4th in The Chronicle of Philanthropy: 10 Companies that gave the most cash in 2013
(July 2014)
Universum: Top 100 IDEAL Employers:9th overall for US undergraduates and 7th
among undergraduate students in Singapore
1st in eFinancialCareers Top 20 Ideal Financial Services Employers

COMPANY VALUATION

Statistical Analysis vs Peers

GS has generated the highest
average EPS growth rate, ROE and
BVPS growth
Strong correlation between capital
markets performance and bank
valuations
Bank revenue generating ability
Banks with stable revenue growth
are rewarded with higher valuations

Currently trading at $183.45

($189.78 as of 13/2/15), market
sentiment suggests that GS stocks
are undervalued

More Than Just A Bank...

Actively involved in community,
social and cultural aspects of
people across the globe
The world's renowned "social
banking entity" based on its wide
corporate ties with governments
Invested substantially in education,
training and venture capital
schemes, enhancing its recruitment
pool

APPENDIX

Income Statement

League Tables -Selected Regions

Revenue Forecasts 2014-2019

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