History of Goldman Sachs
In 1869, only 4 years after the end of the US Civil War, a German immigrant named Marcus Goldman
moved to New York City with his family. Upon arrival, Goldman opened a one-room basement office next
to a coal chute at 30 Pine Street in Lower Manhattan. During a period of tight and expensive bank credit,
Goldman offered the local merchants an alternative. He would purchase their promissory notes and then
sell the notes to New York’s commercial banks, becoming a pioneer in what became known as the
commercial paper (CP) business. CP became an alternative to bank credit lines. With the addition of his
son-in-law, Samuel Sachs, in 1882, and his son, Henry Goldman, in 1885, Marcus Goldman’s enterprise
became a partnership with a new name: Goldman, Sachs & Co. By the time the firm joined the New York
Stock Exchange in 1896, Goldman Sachs was a leader in commercial paper sales. As the firm’s clients
grew in number, it opened offices in Boston and Chicago (1900), San Francisco (1918), and Philadelphia
and St. Louis (1920), becoming a national firm. From the start, the firm was organized as a partnership,
with all key decisions and commitments undertaken by the firm’s partners. Ownership and management
were one and the same. The partnership mindset came to define the firm’s culture and persisted over the
ensuing decades more durably than any of its investment banking competitors, all of which likewise started
as partnerships.
In 1897, Goldman Sachs established relationships with financial firms in major European capitals,
providing an array of services that included foreign exchange, letters of credit, gold shipments and arbitrage.
In the early 1900s, as clients increasingly needed larger amounts of long-term capital, the firm began to
establish its investment banking business. In two of the firm’s first public transactions – initial stock
offerings for General Cigar and Sears, Roebuck, both in 1906 – Goldman Sachs broke new ground in
making equity and debt securities more attractive to investors. The firm took a unique approach by
introducing the concept of valuing issues on the basis of a company’s earnings power and goodwill, instead
of solely on its tangible and easier-to-value physical assets. This approach opened up a vast new source of
capital, particularly for retailers and other companies with few hard assets. The price-to-earnings ratio
would become an industry standard and established Goldman Sachs as a financial innovator. The firm’s
underwriting activities expanded quickly to include such early clients as F.W. Woolworth, a general
merchandise retailer (1912), Merck, a pharmaceutical company (1919), and General Foods, a food
manufacturer (1922).
There were misses as well as hits along the way. In the early 1920s, Goldman Sachs established a closedend fund, Goldman Sachs Trading Corp, which collapsed in the stock market crash of 1929 and the
Depression that followed in the 1930s, creating reputational problems that took time to overcome. The
Depression was a difficult period for Goldman Sachs, as for its Wall Street competitors as well. The volume
of business was at a low ebb for close to a decade.
In 1930, Sidney J. Weinberg was named senior partner. Weinberg, considered the father of the modernday Goldman Sachs and known as “Mr. Wall Street”, would serve as senior partner for over 40 years. His
early years at the helm of the firm were difficult ones, as he guided the firm through the challenging 1930s
and early 1940s, before the U.S. emerged out of the end of World War II on a stronger growth trajectory.
Weinberg shifted focus away from trading and toward investment banking – raising capital and providing
advisory services for corporate clients. Weinberg was a very social individual and maintained contact with
key people in the business and government communities. He effectively shaped Goldman Sachs’
partnership culture to a corporate finance service culture, forming the New Business Department to market
the services of its corporate finance specialists and to ensure the continuity of client relationships. Client
interests were the primary focus, and this long defined the Goldman Sachs approach to business. Under his
leadership, Goldman was lead advisor on the Ford Motor Company’s $657 million IPO in 1956 ($6.6 billion
in 2022 dollars), a major coup on Wall Street at the time, made possible by Weinberg’s contacts with the
family of Henry Ford. Weinberg was also responsible for creating an equity research division and a
municipal bond department, as well as establishing risk arbitrage as a distinct line of business.
Weinberg’s eventual successor, Gus Levy, joined the firm in 1933 as a securities trader and became a
partner in 1945. Levy was a pioneer in block trading, in which the firm risked a large amount of capital to
provide trading clients with liquidity and effective low-cost execution by buying large blocks of securities
at a fixed price and then selling them in the market, hopefully at a profit. Competitors were slower or more
risk averse in adopting the practice, so Goldman Sachs was able to gain market shares in the equity sales
and trading business, notably with large institutional investors. This contrasted with Charlie Merrill’s firm
- Merrill Lynch - which was focused more on individual retail investors at that time. As he rose through
the firm, Levy was influential in gradually changing the profile of Goldman Sachs and the balance between
its two powerful divisions, investment banking and securities trading.
From the late 1950s to the early 1960s, Goldman Sachs employed more than 500 people to serve its clients.
The firm, now a leader in private finance, was building a similar position in municipal finance. It also set
another industry standard by establishing one of Wall Street’s first mergers and acquisitions departments.
Levy took over as Goldman Sachs’ senior partner in 1969 upon Weinberg’s death, and continued to build
the firm’s trading franchise. The real estate department was created in 1969, setting the stage for the firm’s
leadership in the sales and financing of major commercial properties. With the formation of the fixed
income department in 1972, Goldman Sachs quickly gained prominence in underwriting and trading across
a wide range of government and corporate debt markets. Levy famously introduced the term “long-term
greedy” to the Goldman vocabulary – denoting a focus on making money in the long-term while helping
clients meet their objectives. Short-term trading losses happened from time to time, but were to be tolerated
as the cost of doing business.
Goldman partners reinvested almost all of their earnings in the firm, except for a “draw” needed to live a
reasonable lifestyle, and the focus was firmly on the future, not the present. In a sense, the firm was married
to its clients and the partners were married to the firm in what became an uncommonly successful business
model.
In 1970, Goldman Sachs along with a number of its competitors suffered a financial setback when Penn
Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding,
much of which had been underwritten by Goldman Sachs. In the face of large investor losses, Goldman
was forced to mount a sustained defence of its due diligence practices and underwriting standards, and
rebuild its reputation with investors.
Like its American investment banking rivals, Goldman Sachs had plenty of business opportunities in the
U.S. domestic market during the high growth 1950s and 1960s, having been protected in the securities
business by the Glass-Steagall provisions of the Banking Act of 1933, which kept out the large commercial
banks with bigger balance sheets and much larger capital bases. In the 1970s, new opportunities were
emerging in Europe, Japan and elsewhere that offered U.S. investment banks a chance to migrate their
financial know-how into markets mainly dominated by big local universal banks. Most of these overseas
banks were well entrenched, with close connections to industry and resistant to importing disruptive new
ideas that could threaten their long-standing business models. Creating a viable competitive footprint
abroad would take considerable time and resources for the American investment banks, but came with a
potentially large payoff as companies and markets globalized. Goldman Sachs met this challenge by
expanding its operations on an unprecedented scale. It opened its first overseas office in London in 1970,
followed by offices in Tokyo and Zurich in 1974.
In the market for M&A and corporate restructuring in the U.S. and abroad, Goldman Sachs tended to focus
on the defence – advisor to the target – both because fees were highly likely to get paid and because conflicts
associated with hostile takeovers of its corporate clients (when acting for the bidder) could be avoided.
This was important for the firm with the most impressive client list in the industry. Goldman Sachs
famously created a “white knight” strategy in 1974 during its defence of Electric Storage Battery against a
hostile takeover bid from Canada’s International Nickel Company (Inco), which was advised by Goldman
rival Morgan Stanley. This was an innovation that burnished the firm’s advisory reputation.
Following Gus Levy’s death in 1976, John Weinberg – Sidney Weinberg’s son – and John Whitehead
became co-senior partners for the firm. With Weinberg’s trading background and Whitehead’s leadership
in corporate finance, this arrangement avoided internecine battle for power across divisions and set a pattern
of co-leadership that was to last for some time. Weinberg and Whitehead defined much of the culture of
Goldman Sachs, including the firm’s 14 business principles (see Appendix). Their joint leadership
embodied the enduring spirit of teamwork that had become one of the firm’s most important values. During
the tenure of “the two Johns”, managing financial risk became increasingly important to successfully
navigating complex markets. Again, Goldman Sachs proved an industry leader, developing successful
strategies that featured innovative products including futures, options, and swaps.
With corporate finance earnings under pressure during the deep recession of the early 1980s, Goldman
Sachs once again ramped up its reliance on trading. In 1981, the firm acquired J. Aron & Company, a
commodities trading business that merged with Goldman’s Fixed Income division to create Fixed Income,
Currencies, and Commodities (FICC). The J. Aron acquisition also provided several important Goldman
Sachs leaders in later years, including future CEO Lloyd Blankfein.
Business in the 1980s was good. Goldman Sachs underwrote the largest REIT offering in history for the
Rockefeller Center. Deals like Microsoft’s IPO, major advisory assignments for GE, and admission as one
of the first six non-Japanese firms to the Tokyo Stock Exchange propelled Goldman Sachs to the top of the
investment banking league tables by the late 1980s. The firm launched a lucrative privatization practice as
Margaret Thatcher privatized whole sectors of the UK economy, and Goldman’s London office grew to
more than 1000 people, becoming the firm’s largest operation after New York. German reunification
brought sell-offs of state-owned enterprises to East Germany, and various governments in continental
Europe and emerging markets followed suit. There was plenty to privatize and Goldman Sachs got more
than its share of the advisory work. To help rebalance the firm on the buyside of the market, Goldman
Sachs Asset Management was formed in 1988 to manage in-house mutual funds and hedge funds offered
to clients, and the Principal Investment Area was created in 1991 to start making principal investments on
behalf of the firm.
At the end of 1984, John Whitehead retired as co-senior partner and was later named U.S. President Ronald
Reagan’s Deputy Secretary of State. John Weinberg became sole senior partner before stepping down six
years later in 1990 to become senior chairman of the firm. With Weinberg’s departure, the tradition of a
dual leadership structure continued, with Robert Rubin (risk arbitrage) and Stephen Friedman (investment
banking) becoming co-senior partners. They built on the firm’s string of successes and innovations, as
Goldman introduced paperless trading to the NYSE, and lead-managed the first global debt offering by a
U.S. corporation. Goldman also launched the Goldman Sachs Commodity Index (GSCI), and opened a
Beijing office in 1994. The $20 billion IMF bailout of Mexico in 1995, resulting from its currency crisis,
limited significant potential losses for Goldman Sachs. However, the Federal Reserve’s abrupt move to
tighten monetary policy wreaked havoc on the firm’s fixed income portfolio and left Goldman partners to
take large losses in their capital accounts. Having been accustomed to consistently growing personal wealth
intended to be harvested at retirement, many Goldman partners were shocked by the losses that they had to
bear, even if only temporarily.
Stephen Friedman became sole senior partner of the firm in late 1992 when Robert Rubin left Wall Street
to serve U.S. President Bill Clinton, eventually becoming Secretary of the Treasury. Upon Friedman’s
retirement in 1994, Jon Corzine (bond trading) became senior partner. In 1997, the firm’s shift to a limited
liability structure resulted in Corzine’s title changing to chief executive officer from senior partner. In 1998
Hank Paulson (investment banking) joined Corzine as co-CEO. The collapse of Long-Term Capital
Management (LTCM) and the financial crisis of 1998 posed significant but not cataclysmic challenges for
the securities industry, and Goldman Sachs weathered them better than most.
In 1998, in a historic vote, the partners decided to take Goldman Sachs public, which would result in the
firm becoming a publicly traded corporate entity and the end of the longstanding partnership structure. The
decision, made after extensive debate within the partnership, gave Goldman Sachs the capital and
organizational flexibility it would need to provide its clients with world-class service into the next century.
Its primary rival, Morgan Stanley, had already gone public in 1986, and other rivals were also already public
including Lehman Brothers (1994), Merrill Lynch (1971), and Bear Stearns (1985). With the growth of
global capital markets and the amount of capital required to support large trading and securities operations,
having access to pubic capital was becoming a requirement. Hank Paulson became sole CEO of Goldman
Sachs in January 1999, and on May 4, 1999 Goldman Sachs stock began trading on the NYSE.
Lloyd Blankfein became CEO in 2006 when Hank Paulsen left to become Secretary of the Treasury under
U.S. President George Bush. The first decade of the twenty-first century was a turbulent one, as financial
markets adjusted to the collapse of the dot-com bubble, the loss of investor confidence following several
highly visible corporate scandals and the 2008 financial crisis, which deeply impacted thousands of
businesses and millions of people around the world. During this time, the financial services industry – and
Goldman Sachs in particular – came under considerable scrutiny. Sweeping changes prompted by
globalization, consolidation, technological transformation and increased regulatory scrutiny all impacted
the financial services industry, but nothing had a bigger impact than the loss of market confidence in 2008.
The financial crisis spelled the end of the independent investment banks, who had been facing increased
competition from the large universal banks (JP Morgan, Citigroup, CSFB, Deutsche, etc.) who were now
allowed to compete directly with the investment banks in traditional securities and other investment banking
activities. By the end of this first decade, Lehman Brothers, Merrill Lynch, and Bear Stearns were all gone,
and both Goldman Sachs and Morgan Stanley had been forced to convert to bank holding companies in
order to secure government funding during the crisis. With this change, the two remaining investment
banks were now regulated by the Federal Reserve, similar to all other commercial banks, and faced much
tighter limits on allowable trading activities, permitted leverage levels, and other restrictions which
previously did not apply to the pure investment banks. However, despite the challenges and the hits to its
reputation, it was widely acknowledged that Goldman Sachs had best managed its risk exposure during the
financial crisis, compared with most other banks.
Between 2005 and 2012, Goldman Sachs extended its reach further into international markets with new
offices in Mumbai, Sao Paulo, Dubai, Doha, Tel Aviv, Riyadh, Warsaw and Amsterdam. In 2014, the firm
heightened its focus on and investment in technology, launching leading edge platforms like Marquee to
advance trading, data security, big-data management and the ability to assess a broad spectrum of risks.
2016 saw the launch of Marcus by Goldman Sachs, a platform designed to help individual investors better
manage their debt by providing fixed-rate, no-fee personal loans. This represented a major initiative by
Goldman Sachs to grow less volatile, non-capital markets related businesses, similar to the large deposit
taking businesses that the universal commercial banks had. In 2017, the firm integrated a consumer online
deposit platform onto Marcus. This new strategic focus on the mainstream consumer market was followed
by another initiative announced in 2019 – a partnership with Apple to launch the Apple Card.
In 2018, Lloyd Blankfein retired as CEO, and David Solomon succeeded him. Solomon built further on
the firm’s 150-year legacy, with further moves into retail consumer banking, as well as new areas such as
climate financing. However, by 2023, its move into consumer lending was seen largely as a failure. With
large losses incurred despite the significant investments made in the platform, Goldman Sachs decided to
scale back the retail lending business.
Goldman’s core businesses of investment banking and trading, along with asset management, continued to
perform well entering the second decade of the 21st century. However, the firm continues to remain under
pressure to find other ways to diversify and become less reliant on the up-and-down fortunes of investment
banking and trading, its traditional strengths. Key rivals including JP Morgan and Morgan Stanley are
much more diversified, with less volatile overall financial performance. The market is now awaiting further
direction from Goldman Sachs on its strategic direction and where it goes next.
Sources: this information was derived primarily from A Brief History of Goldman Sachs (2022) published
by Goldman Sachs, and from Goldman Sachs Group, Inc: Sustaining The Franchise published by INSEAD
(2014)
Appendix