GOLDMAN SACHSPEST & INTERNAL ANALYSIS

BY: DAVID TROXELL

Company Snapshot

Founded in 1869 by Marcus Goldman Headquartered in New York City, New

York Joined the New York Stock Exchange in

1896 Employees 38,700 worldwide

Company Snapshot cont.

2010 total sales were $39.161 billion with $5.014 coming from the investment management division, which is 12.8% of the total

Ranker 1st of 148 in market capitalization 10,000 Small Businesses- $500 million

initiative to create the potential for small business growth throughout the United States

PEST ANALYSIS

Political-

• SEC regulations• In 2010 charged with civil fraud over complex

mortgage securities• FDIC regulations

• Became a bank holding company in 2008, to provide safety from what happened to other investment banks

PEST ANALYSIS

Economic-

• Rising commodity prices• Through the sale of derivatives they will gain a

profit • Global economic recession

• In 2010 total net revenues fell by 13.3% • All-time high for mortgage foreclosures

• Currency exchange rates• Only offer securitised derivatives to: Germany,

Switzerland, France, Italy, Japan, and Hong Kong

PEST ANALYSIS

Socio-cultural

• Business Ethics • Used cross currency swaps to hide how much

debt the Greek government had on their books to become accepted into European Union

• Consumer becoming more savings conscious• From 2008 to 2010 consumers savings

increased from $447.93 to $655.78, or 46.4%

PEST ANALYSIS

Technological

• Mobile applications• Increasing population with smartphones that

have downloadable applications

PEST ANAYLSIS- Summary

Factor Trend Evaluation Impact (1=low, 5=high)

Rank in terms of importance

Political SEC regulations

FDIC regulations

Threat

T/O

4

5

1

Economic Rising commodity pricesGlobal economic recessionCurrency exchange rates

Opportunity

Opportunity

Threat

4

3

4

2

Socio-cultural Business Ethics Consumers becoming more savings conscious

T/O

Opportunity

5

2

3

Technological Mobile Applications Opportunity 2 4

INDUSTRY ANALYSIS

Defined: Diversified Investments Industry Investment Management Services Include:

Asset and Private Wealth Management Securitised Derivatives Bank Deposits Closed ended investments Direct private investing Mutual Funds Securitised products and structured fund

solutions

INDUSTRY ANALYSIS

Buyers:

• Financial Institutions• Corporations• Governments • High-net-worth Individuals

INDUSTRY ANALYSIS

Suppliers:

• The Federal Reserve • United States Treasury Department

INDUSTRY ANALYSIS

Competitors:

JP Morgan Chase & Co. Morgan Stanley Citigroup Global Markets Inc. (private) Bank of America Securities LLC (private) UBS Investment Bank (private) Deutsche Bank AG

INDUSTRY ANALYSIS

Substitutes:

Other bank holding companies Consumers- spending rather than saving Corporations- contracting rather than

expanding Governments- budget cuts rather than

spending

INDUSTRY ANALYSIS

Potential Entrants:

Very low risk of potential new entrants (since 2008 there have been approximately 320 bank failures)

During that time some of the biggest banks were bought out such as: Bear Stearns, Merrill Lynch, Wachovia, and National City Corp.

FIVE FORCES- Summary

Factor Evaluation

Buyer Power Benign ( services can be purchased on an individual or large basis whether it be by a corporation, government, or individual and may have a switching cost to terminate a contract)

Supplier Power Strong Force ( rates and other factors are set forth by officials, so there is no bargaining power)

Intensity of Rivalry Strong Force ( there are approximately 8,000 banks in the U.S. alone so there is a large amount of competition)

Threat of Substitute Products Strong Force ( the largest threat is outside substitutions for services, can have switching cost so the force wouldn’t be as powerful)

Threat of New Entrants Benign ( very low threat to which it is almost non-existent as in the recent years there has been a large number of bank failures and acquisitions)

SUGGESTIONS

Key Force- Intensity of Rivalry Goldman Sachs is the 5th largest bank

holding company To keep a competitive advantage

Goldman Sachs must evaluate their competencies to eliminate any that may drive their profits down

CONCLUSION

Biggest threat is brought about by the rivals of Goldman Sachs

If the securitised derivatives market is profitable, expand into other countries and regions of the world instead of limiting options

Continue to create a positive image with public through their charitable fund “Goldman Sachs Gives”

GOLDMAN SACHSCOMPETITOR & MARKET ANALYSIS

Key Competitors

JP Morgan Chase & Co. Morgan Stanley Deutsche Bank AG Citigroup Global Markets, Inc. (private) Bank of America Securities LLC (private) UBS Investment Bank (private)

CompetitorsGoldman Sachs JP Morgan Chase & Co. Morgan Stanley Deutsche Bank AG

Sales (in billions)

$39.16 $102.694 $16.366 €28.567, $40.25

Sales Growth (quarterly)

(10.1%) 45.2% 30.1% 30.4%

Net Income $7.71 $17.37 $2.55 €2.33, $3.283

Sales Distribution by Division

Investment banking- 12.28% Investment management-11.93% Commissions&Fees- 9.12%Market making- 34.93% Other principal transactions-17.7% Interest income- 14.04%

Investment banking- 6.02%Principal transactions- 10.61%Lending&Deposit Fees- 6.17%Asset management- 13.14%Securities gains- 2.89%Mortgage fees- 3.77%Credit card- 5.74%Other- 1.99%Interest Income- 49.66%

Investment banking- 26.24%Other principal transactions- 54.77%Commissions&Fees- 13.89%Asset management- .64%Other- 6.09%Interest expense- (1.63%)

Interest income- 50.08%Commissions&Fees- 37.45%Other income- 2.67%Financial assets/liabilities at fair value- 11.74%Financial assets available for sale- .7%Equity method investments- 7.01%

Employees 38,700 239,831 62,542 102,062

Competitor AnalysisCompetitor Objectives

Goldman Sachs Research from across economics, commodities and strategy research to locate investment opportunities across asset classes. We focus on key themes, recommendations and how to implement them.

JP Morgan Chase & Co.

Be a catalyst for meaningful, positive and sustainable change within our highest-need neighborhoods and communities across the globe.

Morgan Stanley Our global citizenship is a direct reflection of the firm's core values and enhances our ability to provide superior service to our clients, our employees and our communities.

Deutsche Bank AG We compete to be the leading global provider of financial solutions, creating lasting value for our clients, our shareholders, our people and the communities in which we operate.

Strategic Business Grouping

Company Product Diversity Reach of Sales

Number of Divisions

Goldman Sachs Investment BankingTrading & Principal InvestmentsAsset ManagementSecurities Services

Global 4

JP Morgan Chase & Co.

Investment BankingCommercial BankingTreasury & Securities ServicesAsset ManagementRetail Financial Services

Global 5

Morgan Stanley Institutional SecuritiesGlobal Wealth Management GroupAsset Management

Global 3

Deutsche Bank AG

Corporate & Investment BankingPrivate Equity Asset Management Corporate Investments Division

Global 4

How the Industry Competes

Reputation Who is going to provide the best customer

service to the client to earn their future business as well

Investment Strategies Is your client willing to take on more or less

risk Competitive rates on savings vehicles Competitive rates/fees on lending

instruments

Product Scope

The goal of Goldman Sachs along with their key competitors is to provide the quality of customer care to each of their clients, along with competitive and affordable rates

Need good customer service Lowest fees and interest for lending

instruments Higher rates of return for their savings

vehicles

Geographical Scope

Company Number of Countries Products Marketed In

Goldman Sachs 30+

JP Morgan Chase & Co. 25+

Morgan Stanley 25+

Deutsche Bank AG 60+

Core CompetenciesCompany Core Competencies

Goldman Sachs Providing excellent diversification for wealth and asset management worldwide

JP Morgan Chase & Co. Considered one of the “Big Four” banks in the U.S. and is highly competitive in market capitalization

Morgan Stanley Providing global financial services to a diversified group of corporations, governments, and financial institutions

Deutsche Bank AG A large presence in Europe, the Americas, Asia Pacific and emerging markets

Size of Market

Company Market Cap (billions) Market Capitalization Rank (industry)

Goldman Sachs $87.02 1st of 147 (Diversified Investments)

JP Morgan Chase & Co. $181.58 26th of 217 (Money Center Banks)

Morgan Stanley $41.17 10th of 175(Investment Brokerage)

Deutsche Bank AG $54.48 7th of 10(Foreign Money Center Banks)

Key Trends

Rise in unemployment This has caused a greater increase in demand

for savings vehicles From 2008 to 2010 consumers savings

increased from $447.93 to $655.78, or 46.4% More strict regulations due to the

collapse of the housing markets Research shows that over the next 10

years that global GDP will grow 4% annually

Key Trends cont.

400 million people projected to move into Chinese urban centers by 2050, which will result in an increasing demand for commodities

Pools of capital in sovereign wealth funds in both developed and emerging economies are expected to grow from $3 trillion to $10 trillion over the next decade

Growth in the Market

Comparing the quarterly sales growths by each of the following organizations it is easy to see the potential.

Compared with their key competitors Goldman Sachs growth is limited on the basis of services provided, but there are many growth markets they are pursuing. One of the biggest reasons as to why Goldman

Sachs had a quarterly loss was due to the fact in 2009 their revenues had jumped by 50% from the previous year.

Target MarketCompany Target Consumer

Goldman Sachs High-Net-Worth IndividualsCorporationsGovernmentsFinancial Institutions

JP Morgan Chase & Co. Financial InstitutionsGovernments Institutional Investors Multinational CorporationsRetail Investors High-Net-Worth Individuals

Morgan Stanley CorporationsGovernments Financial Institutions Individuals worldwide

Deutsche Bank AG CorporationsFinancial InstitutionsHigh-Net-Worth Individuals

Social Media

One of the most efficient ways to advertise today being able to reach everyone with the use of internet Facebook LinkedIn Twitter YouTube Flickr Podcast

Conclusions

To successfully compete in the diversified investments market it is important to highlight the service differentiations, so that you are always separating yourself from your competition.

The keys to competition in this industry is reputation, investment strategies, and competitive rates on savings vehicles and lending instruments

Social Media is a great and cheap way to advertise, along with the potential to scout new talent for the workforce, ie. LinkedIn

GOLDMAN SACHS INTERNAL & SWOT ANALYSIS AND COMPANY’S COMPETITIVE

POSITIONING

Business Model

Customer Service and Loyalty comes first Their assets are their people, capital &

reputation Provide superior returns to shareholders Great sense of pride in the professional

quality of work provided Creativity and imagination is in

everything they do

Change in Sales/Profits 2006 2007 2008 2009 2010

Sales (in millions)

$37,665 $45,987 $49,802 $45,173 $39,161

Profits $9,398 $11,407 $2,041 $12,192 $7,713

Percentage Increase/ (decrease) in profits

21.4% (118%) 697% (163%)

• From 2006 to 2010 there is a sales increase of approximately 4% •However from 2008 the sales actually decrease by 21.4%

•Their profits have a few good years but ultimately see a decline by 17.9%

3 year AGR Score

• Goldman Sachs is currently rated as having Aggressive Accounting & Governance Risk (AGR) they are in the 16th percentile among all companies, indicating higher Accounting & Governance Risk (AGR) than 84% of companies.

Changes In Distribution of Sales

On January 11, 2011, Goldman Sachs announced it will be making certain changes to their business segments, the company has reported the following four business segments: Investment Banking, Institutional Client Services, Investing and Lending, and Investment Management.

Also hoping to capitalize from more global capital markets

Key Assets Cash and cash equivalents $39.788b (4%) Cash & securities segregated for regulatory and other purposes

$53.731b (47%) Collateralized agreements $188.355b (31%) Securities borrowed $166.306b (12%) Receivables from brokers, dealers and clearing organizations $10.437b

(17%) Receivables from customers and counterparties $67.703b (22%) Financial instruments owned $356.953b (4%) Other assets $28.059b (5%)

The percentage increase/decrease is compared with 2009 value

BCG Matrix

SWOT Analysis

Strengths

Well diversified business mix Best positioned versus its peers for long-term

earnings growth due to superior business mix and culture

Dominant position in the most profitable segments of investment banking and trading businesses, with a history of outperforming during both strong and weak market environments.

SWOT cont.

Weaknesses

Weakness in equity markets is likely to affect investor confidence

As a bank holding company, Goldman faces structural challenges including a potential shift of more of its liability mix to deposits and away from more wholesale-oriented funding

Also Goldman has a very high accounting and governance risk which could also affect confidence within the company

SWOT cont.

Opportunities

Expectation of more private equity gains, despite the flattish equity markets.

High leverage to the global capital markets, with a leading presence in investment banking, trading, and prime brokerage.

SWOT cont.

Threats

A slowing US economy could result in a softer equity underwriting business and low merchant banking gains.

Many of Goldman’s businesses have net long positions in various financial instruments. These investing and trading positions are marked to market on a daily basis, and declines in these asset values can directly affect Goldman’s financial performance

Goldman could also face challenges from Basel III and the Dodd-Frank Act.

Generic Strategy

Grand Strategy Model

Goldman’s Grand Strategy

Investing in Growth Markets The growth strategy for Asia has been Korea,

where Goldman has built a significant presence since 2007 through acquisitions, alliances, and product expansion

The BRICs are a major target because these growth markets are the anchors in the global economy. Brazil Russia India China

Ansoff’s Growth Matrix

Goldman should be in the middle of this chart. Market Penetration for

their exploration into potential growth markets

Product Development to constantly try to create new solutions for their existing clients

Market development in emerging markets by creating strategic alliances

Diversification to better help international clients as they enter foreign markets

Competitive Position

Strengthening Client Relationships Strengthening Reputational Excellence Strengthening Committee Governance Enhancing Transparency of

Communication & Disclosure Strengthening Training & Professional

Development

International Performance

PZU SA Largest insurance company in Central and Eastern

Europe, 2010 Goldman helped complete a successful IPO that launched PZU on the path to becoming an independent company

This was the largest IPO in Europe since 2007 and the largest ever in Central Europe, which led to Goldman Sachs International established an office in Warsaw, Poland in 2010

Ports America Group (PAG) Goldman assisted PAG in raising $249 million

for Baltimore’s Seagirt Marine Terminal, with the widening of the Panama Canal to be completed in 2014

International Performance cont.

AIA Group Limited (AIA) $20.5 billion, AIA was the largest IPO ever

listed on a single stock exchange, the third largest IPO globally and the world’s largest IPO in the insurance sector

HRT Participacoes em Petroleo S.A. (HRT) With ambitious plans to explore and develop

oil fields in the Solimoes Basin of Brazil, as well as offshore exploration areas in the Walvis and Orange basins of Namibia. Goldman helped HRT raise more than $1.5 billion through an IPO in October 2010

International Performance cont.

Dai-ichi Life Insurance Company, Limited (Dai-ichi Life) In April 2010 Goldman helped Dai-ichi Life

bring an IPO to the Tokyo Stock Exchange which resulted in a $11.2 billion offering

This was the largest IPO in Japan since 1998, and Dai-ichi has already had the opportunity to expand internationally.

Conclusions

Major focus towards service and loyalty to their clients

Aggressive approach towards investments to provide superior returns to shareholders

The expansion of creativity and imagination to provide the best possible solutions to any problem that arises

Taking great pride in the professional quality of work Expanding into potential growth markets, which Asia

is one of the biggest targets by Goldman Sachs