☰ Menu eFinancialCareers

Goldman Sachs just made this presentation about its most appealing division

Today marks the start of the 2015 Bank of America Merrill Lynch Financial Services Conference. The great and the good of finance are setting out their stalls, including (so far) Brian Moynihan, CEO of Bank of America, and Harvey Schwartz, CFO of Goldman Sachs.

Moynihan’s presentation wasn’t investment bank-specific, but included some interesting items. BofA is spending $3bn every year on new technology, said Moynihan. That’s in addition to the cost of running existing systems and is five times higher than it was a few years ago. Moynihan said the bank is cutting costs and automating everywhere – sales roles excepted. And he said that when cyber security teams at BofA need more money, they get it.

However, Harvey Schwartz’s presentation was likely to be of more interest to anyone thinking of a career at a major international bank. Schwartz took the opportunity to explain precisely what goes on in Goldman’s opaque investing and lending division, which encompasses the firm’s Volcker-compliant private equity and loans division and is more about long term economic trends than short term market movements.

You can see the full presentation here, but these are the key points.

1. Goldman Sachs’ investing and lending division is mostly about making loans

Very little of Goldman’s portfolio is invested in equity (either public or private). Instead, it’s all in loans and most of those loans are ‘HFI’ (Held for Investment), which means the bank plans to hold them for the foreseeable future and doesn’t have to record every change in their value in its quarterly accounting statements.

Another 24% of Goldman’s loans are ‘FV’ (Fair Value) loans, which means that Goldman does have to disclose changes in their market price.

Goldman Sachs IL

Source: Goldman Sachs

2. A lot of the loans made by Goldman’s investing and lending division went to corporates, but quite a few went to rich people 

Do you know how to analyze the credit-worthiness of a wealthy client (and quite possibly the firm’s own staff, or ex-staff)? Goldman’s investing and lending division would like to hear from you. 31% of its loans were made under the guise of private wealth management, with another 41% sprinkled across the corporate sector.

Goldman Sachs IL loans 2

Source: Goldman Sachs

3. Quite a lot of the private loans made by Goldman’s investing and lending division took the form of mortgages

Do you want Goldman Sachs to help you buy your house? It will, if you’re wealthy enough. Again, Goldman has also been known to provide mortgages to current and ex-staff….

Goldman I&L mortgages

Source: Goldman Sachs

4. Goldman’s private equity investments are mostly in America, and mostly in the real estate, financials, and technology, media and telecommunications sectors

Goldman by geography

Source: Goldman Sachs

Goldman by sector

Source: Goldman Sachs

5. Even though Goldman is adamant that investing and lending adheres to the Volcker Rule, it still sounds quite hedge-fundy

Finally, when you look at the breakdown of revenues by ‘investment-type’, Goldman’s investing and lending division sounds quite a bit like a hedge fund. Schwartz said it absolutely adheres to the Volcker Rule’s restrictions on banks making hedge fund and private equity investments, but Goldman still has ‘event driven revenues’ (albeit not in the hedge fund sense) and at least 20% of the division’s revenues come from changes in the price of publicly listed equities and debt – which sounds a bit like prop trading.

Goldman event driven

Source: Goldman Sachs

Comments (0)

Comments

The comment is under moderation. It will appear shortly.

React

Screen Name

Email

Consult our community guidelines here