Goldman Sachs (GS) In a Class of Its Own

With the big investment banks done reporting this week, one thing has become clear, Goldman Sachs is in a class by itself.  Unlike the other banks, Goldman anticipated the credit crunch and put hedging strategies in place that produced the third best quarterly profit in the company’s 138 year history.  Amazing.

How did it do it?  By seeing the trends and betting against the mortgage market.  The company’s mortgage profits actually rose significantly while the company also doubled revenue from equity trading and generated record investment banking fees.

As the chart shows, Goldman suffered along with all of other i-banks during the credit crunch but its stock is bouncing back.  Based on these earnings, Goldman should bounce even higher.

It's PE is a bit higher than it's peers:

Goldman               9.68

Bear Stearns:       8.78

Morgan Stanley:   7.28

But how can you bet against a company that seems to have its pulse on the financial market.  Short term, the stock may vaccilate but long term I'd put my money with the guys (and girls) who clearly know how to make lots of it - in good and bad.     

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • Schmidty

    September 23, 2007

    I found this note from today's Wall Street Journal remarkable:

    At Goldman, They Scrape By

    Here's some advice for any investment banker who wants to avoid seeing his bonus slashed this year: Get a job at Goldman.

    Goldman Sachs Group set aside $16.9 billion in the first nine months of the year to pay its employees, Bloomberg points out. That is $400 million more than the bonanza the firm doled out in all of last year.

    It works out to $565,730 for each of Goldman Sachs's nearly 30,000 employees, a 4% increase from last year.

    Some of them, of course, like star investor Mark McGoldrick, skew the scale a bit. He pulled in $70 million last year. (Depending on how you look at it, that could make you feel not so bad, or even worse.)

    Of course, only Goldman pays out this kind of money, which is about equal on an annual basis to the gross domestic product of Lebanon.

    And only Goldman hands out such salary increases in a year that is turning into an annus horribilis for Wall Street.

  • William Li

    October 03, 2007

    Goldman is a class apart from the rest of the street and is the only bank, investment bank or commercial bank, that I would own in these turbulent times.

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