Goldman Sachs in Trouble
The firm is not as bad as it is described
Walking toward Kasumigaseki building, I looked at the top of the tall building which has as many as 40th floor. I was very young man with no work experience forty years ago but aspirations and ambitions were immense. It was the moment right after college in America. I was twenty-four years old.
My first employer was Swiss Bank Corporation International, an investment arm of Swiss Bank Corporation. Later the financial institutuion merged with Union Bank of Switzerland to become United Bank of Switzerland. Everybody in finance calls UBS now.
UBS was relatively small operation in 1980’s. The big guys at the top included Morgan Stanley, Solomon Brothers, and Goldman Sachs. Among investment bankers in Tokyo, Goldman Sachs was regard as something special with elites.
On January 26th, 2023, the Economist pubished a story of Goldman Sachs (GS), “The humbling of Goldman Sachs”. The story started with its worst quarterly results for a decade. Something is going on with the firm. JP Morgan Chase and Morgan Stanley did pretty good. GS plead guilty of 1mdb scandal with Malaysia and Abu Dhabi who received $1.6bn of bribes.
The boss, David Solomon, took the helm in 2018 to diversify its business into new areas. But the recent result may unveil the struggle of its myth, the best and brightest achieving excellence in everything. The paper cites three challenges.
First, GS is in bad industry. The investment banking no longer does business in speculative trading in the regulated banking activities. Yet the firm overpaid a total of $15bn with profits halved to $11bn, the second-highest salary and bonus. Second, GS diversified into unfamiliar digital market with tiny fees in transaction-banking with customers. Its base reached mere 15m customers. Yet JPMorgan gained 66m American households. Scale is an issue here.
Third area of struggle lies in international operations. The revenues in the region outside US dropped to a third of growth from half of it in 2010’s. The brand reached its prime high but declined steadly.
Is the firm as bad as it described? My answer is, “No, it isn’t” The firm still stands high in Manhattan skyscrapers. My argumet is based on three reasons, its sustained profits, elite talents, and high pay.
In 2021, the firm raked a whopping $21bn in profits, which still looked attractive for investors in capital markets in New York. This is pretty impressive, given the situation that investment banking seems to disappear after the Lehman Shock in 2007–2009. The firm compensated as described above the second-highest amont to the workforces in New York. With its brand still projecting top of the elites, the firm continues to attact good talents from Ivy-leagues and prestigous business schools in America.
Goldman Sachs may no longer be the best place to work in Tokyo. Brand and reputations is somewhat lost in Asia.But in America, talents go to New York to receive high salary. The firm pays $100,000 on average for new graduates. It is not so bad for twenty-two year olds.