- Firm's First IPO Uses New Earnings-Based Approach to Valuation
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- Founding and establishment
- Mid-20th century
- Goldman sachs partners at ipo
- Late 20th century
- Goldman Sachs
- Making partner: Career progression at Goldman Sachs
- 21st century
- Subprime mortgage crisis: 2007–2008
- USA: INVESTMENT FIRM GOLDMAN SACHS GOES PUBLIC (2)
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- Reemergence: 2008–present
- Current operations
- Investment banking
- Investing and lending
- Institutional Client Services
- Investment management
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- Controversies and legal issues
- Lloyd Blankfein owned 0.9% worth about $148.5 million
- CEO-to-worker pay ratio
- Role in the financial crisis of 2007-2008
- Sale of Dragon Systems to Lernout & Hauspie despite accounting issues
- Stock price manipulation
- Use of offshore tax havens
- Involvement in the European sovereign debt crisis
U.S. multinational investment bank
The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage, and securities underwriting.
The bank is one of the largest investment banking enterprises in the world, and is a primary dealer in the United States Treasury security market and more generally, a prominent market maker.
The group also owns Goldman Sachs Bank USA, a direct bank.
Firm's First IPO Uses New Earnings-Based Approach to Valuation
Goldman Sachs was founded in 1869 and is headquartered at 200 West Street in Lower Manhattan with additional offices in other international financial centers.
As a result of its involvement in securitization during the subprime mortgage crisis, Goldman Sachs suffered during the financial crisis of 2007–2008, and received a $10 billion investment from the United States Department of the Treasury as part of the Troubled Asset Relief Program, a financial bailout created by the Emergency Economic Stabilization Act of 2008.
The investment was made in November 2008 and was repaid in June 2009.
Former employees of Goldman Sachs have moved on to government positions.
Notable examples includes former U.S. Secretaries of the Treasury Robert Rubin and Henry Paulson; current United States Secretary of the Treasury Steven Mnuchin; former Under Secretary of State John C.
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Whitehead; former chief economic advisor Gary Cohn; United States Senator and former Governor of New JerseyJon Corzine; former Prime Minister of Italy Mario Monti; European Central Bank President Mario Draghi; former Bank of Canada Governor and current Governor of the Bank of England Mark Carney; and the former Prime Minister of Australia Malcolm Turnbull.
In addition, former Goldman employees have headed the New York Stock Exchange, the World Bank, and competing banks such as Citigroup and Merrill Lynch.
The company is ranked 62nd on the Fortune 500 list of the largest United States corporations by total revenue.
Founding and establishment
See also: Goldman–Sachs family
Goldman Sachs was founded in New York in 1869 by Marcus Goldman. In 1882, Goldman's son-in-law Samuel Sachs joined the firm. In 1885, Goldman took his son Henry and his son-in-law Ludwig Dreyfuss into the business and the firm adopted its present name, Goldman Sachs & Co. The company made a name for itself pioneering the use of commercial paper for entrepreneurs and joined the New York Stock Exchange (NYSE) in 1896. By 1898, the firm's capital stood at $1.6 million (about $49 million in real value), and was growing rapidly.
Goldman entered the initial public offering market in 1906 when it took Sears, Roebuck and Company public. The deal occurred due to Henry Goldman's personal friendship with an owner of Sears, Julius Rosenwald. Other IPOs followed, including F.
W. Woolworth and Continental Can. In 1912, Henry S. Bowers became the first non-member of the founding family to become partner of the company and share in its profits.
In 1917, under growing pressure from the other partners in the firm due to his pro-German stance, Henry Goldman resigned. Control of the firm was now in the hands of the Sachs family.Waddill Catchings joined the company in 1918. In 1920, the firm moved from 60 Wall Street to $1.5 million 12-storey premises on 30-32 Pine Street. By 1928, Catchings was the Goldman partner with the single largest stake in the firm.
On December 4, 1928, the firm launched the Goldman Sachs Trading Corp, a closed-end fund. The fund failed during the Stock Market Crash of 1929, amid accusations that Goldman had engaged in share price manipulation and insider trading.
In 1930, the firm ousted Catchings, and Sidney Weinberg assumed the role of senior partner and shifted Goldman's focus away from trading and toward investment banking. It was Weinberg's actions that helped to restore some of Goldman's tarnished reputation.
On the back of Weinberg, Goldman was lead advisor on the Ford Motor Company's IPO in 1956, which at the time was a major coup on Wall Street. Under Weinberg's reign the firm also started an investment research division and a municipal bond department. It also was at this time that the firm became an early innovator in risk arbitrage.
Gus Levy joined the firm in the 1950s as a securities trader, which started a trend at Goldman where there would be two powers generally vying for supremacy, one from investment banking and one from securities trading.
Goldman sachs partners at ipo
For most of the 1950s and 1960s, this would be Weinberg and Levy. Levy was a pioneer in block trading and the firm established this trend under his guidance. Due to Weinberg's heavy influence at the firm, it formed an investment banking division in 1956 in an attempt to spread around influence and not focus it all on Weinberg.
In 1969, Levy took over as Senior Partner from Weinberg, and built Goldman's trading franchise once again. It is Levy who is credited with Goldman's famous philosophy of being "long-term greedy", which implied that as long as money is made over the long term, trading losses in the short term were not to be worried about.
At the same time, partners reinvested almost all of their earnings in the firm, so the focus was always on the future. That same year, Weinberg retired from the firm.
Another financial crisis for the firm occurred in 1970, when the Penn Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued through Goldman Sachs. The bankruptcy was large, and the resulting lawsuits, notably by the SEC, threatened the partnership capital, life and reputation of the firm. It was this bankruptcy that resulted in credit ratings being created for every issuer of commercial paper today by several credit rating services.
During the 1970s, the firm also expanded in several ways.
Under the direction of Senior Partner Stanley R. Miller, it opened its first international office in London in 1970 and created a private wealth division along with a fixed income division in 1972.
It also pioneered the "white knight" strategy in 1974 during its attempts to defend Electric Storage Battery against a hostile takeover bid from International Nickel and Goldman's rival Morgan Stanley. This action would boost the firm's reputation as an investment advisor because it pledged to no longer participate in hostile takeovers.
John L. Weinberg (the son of Sidney Weinberg), and John C. Whitehead assumed roles of co-senior partners in 1976, once again emphasizing the co-leadership at the firm. One of their initiatives was the establishment of 14 business principles that the firm still claims to apply.
Late 20th century
On November 16, 1981, the firm acquired J.
Aron & Company, a commodities trading firm which merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities.
J. Aron was a player in the coffee and gold markets, and the former CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger.
In 1985 it underwrote the public offering of the real estate investment trust that owned Rockefeller Center, then the largest REIT offering in history.
In accordance with the beginning of the dissolution of the Soviet Union, the firm also became involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments.
In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds today. In the same year, the firm also underwrote the IPO of Microsoft, advised General Electric on its acquisition of RCA and joined the London and Tokyo stock exchanges.
1986 also was the year when Goldman became the first United States bank to rank in the top 10 of mergers and acquisitions in the United Kingdom.
During the 1980s the firm became the first bank to distribute its investment research electronically and created the first public offering of original issue deep-discount bond.
Robert Rubin and Stephen Friedman assumed the Co-Senior Partnership in 1990 and pledged to focus on globalization of the firm and strengthening the Merger & Acquisition and Trading business lines.
Making partner: Career progression at Goldman Sachs
During their reign, the firm introduced paperless trading to the New York Stock Exchange and lead-managed the first-ever global debt offering by a U.S. corporation. It also launched the Goldman Sachs Commodity Index (GSCI) and opened a Beijing office in 1994. Also in 1994, Jon Corzine assumed leadership of the firm as CEO, following the departure of Rubin and Friedman. Rubin drew criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key distributor. On November 22, 1994, the Mexican Bolsa stock market had admitted Goldman Sachs and one other firm to operate on that market. The 1994 economic crisis in Mexico threatened to wipe out the value of Mexico's bonds held by Goldman Sachs.
In 1994, Goldman financed Rockefeller Center in a deal that allowed it to take an ownership interest in 1996, and sold Rockefeller Center to Tishman Speyer in 2000. In April 1996, Goldman was lead underwriter of the Yahoo! IPO. In 1998 it was the co-lead manager of the 2 trillion yen NTT DoCoMo IPO. In 1999, Goldman acquired Hull Trading Company, one of the world's premier market-making firms, for $531 million. After decades of debate among the partners, the company became a public company via an initial public offering in May 1999. Goldman sold 12.6% of the company to the public, and, after the IPO, 48.3% of the company was held by the 221 former partners, 21.2% of the company was held by non-partner employees, and the remaining 17.9% was held by retired Goldman partners and two long-time investors, Sumitomo Bank Ltd.
and Assn, the investing arm of Kamehameha Schools. The shares were priced at $53 each and, after the IPO, Henry Paulson became Chairman and Chief Executive Officer, succeeding Jon Corzine.
Goldman Sachs purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000. In January 2000, Goldman, along with Lehman Brothers, was the lead manager for the first internet bond offering for the World Bank. In March 2003, the firm took a 45% stake in a joint venture with JBWere, the Australian investment bank. In April 2003, Goldman acquired The Ayco Company L.P., a fee-based financial counseling service. In December 2005, four years after its report on the emerging "BRIC" economies (Brazil, Russia, India, and China), Goldman Sachs named its "Next Eleven" list of countries, using macroeconomic stability, political maturity, openness of trade and investment policies and quality of education as criteria: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam.
In May 2006, Paulson left the firm to serve as United States Secretary of the Treasury, and Lloyd C.
Blankfein was promoted to Chairman and Chief Executive Officer. In January 2007, Goldman, along with CanWest Global Communications, acquired Alliance Atlantis, the company with the broadcast rights to the CSI franchise.
On September 10, 2018, Goldman Sachs acquired Boyd Corporation for a Leveraged Buyout of $3 billion.
On May 16, 2019, Goldman Sachs acquired United Capital Financial Advisers, LLC for $750 million cash.
Goldman Sachs will, among others, rely on CoreCard, a card management software owned by the Fintech company Intelligent Systems Corporation.
Subprime mortgage crisis: 2007–2008
During the 2007 subprime mortgage crisis, Goldman profited from the collapse in subprime mortgage bonds in summer 2007 by short-selling subprime mortgage-backed securities.
Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with being responsible for the firm's large profits during the crisis. The pair, members of Goldman's structured products group in New York City, made a profit of $4 billion by "betting" on a collapse in the subprime market and shorting mortgage-related securities.
By summer 2007, they persuaded colleagues to see their point of view and convinced skeptical risk management executives. The firm initially avoided large subprime write-downs and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions. The firm's viability was later called into question as the crisis intensified in September 2008.
USA: INVESTMENT FIRM GOLDMAN SACHS GOES PUBLIC (2)
On October 15, 2007, as the crisis had begun to unravel, Allan Sloan, a senior editor for Fortune magazine, wrote:
So let's reduce this macro story to human scale.
Meet GSAMP Trust 2006-S3, a $494 million drop in the junk-mortgage bucket, part of the more than half-a-trillion dollars of mortgage-backed securities issued last year. We found this issue by asking mortgage mavens to pick the worst deal they knew of that had been floated by a top-tier firm - and this one's pretty bad.
It was sold by Goldman Sachs - GSAMP originally stood for Goldman Sachs Alternative Mortgage Products but now has become a name itself, like AT&T and 3M.
This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust.
It's got speculators searching for quick gains in hot housing markets; it's got loans that seem to have been made with little or no serious analysis by lenders; and finally, it's got Wall Street, which churned out mortgage "product" because buyers wanted it. As they say on the Street, "When the ducks quack, feed them."
On September 21, 2008, Goldman Sachs and Morgan Stanley, the last two major investment banks in the United States, both confirmed that they would become traditional bank holding companies. The Federal Reserve's approval of their bid to become banks ended the business model of an independent securities firm, 75 years after Congress separated them from deposit-taking lenders, and capped weeks of chaos that sent Lehman Brothers into bankruptcy and led to the rushed sale of Merrill Lynch to Bank of America Corp. On September 23, 2008, Berkshire Hathaway agreed to purchase $5 billion in Goldman's preferred stock, and also received warrants to buy another $5 billion in Goldman's common stock within five years. The company also raised $5 billion via a public offering of shares at $123 per share. Goldman also received a $10 billion preferred stock investment from the U.S.
Treasury in October 2008, as part of the Troubled Asset Relief Program (TARP).
Andrew Cuomo, then New York Attorney General, questioned Goldman's decision to pay 953 employees bonuses of at least $1 million each after it received TARP funds in 2008. In that same period, however, CEO Lloyd Blankfein and six other senior executives opted to forgo bonuses, stating they believed it was the right thing to do, in light of "the fact that we are part of an industry that's directly associated with the ongoing economic distress". Cuomo called the move "appropriate and prudent", and urged the executives of other banks to follow the firm's lead and refuse bonus payments. In June 2009, Goldman Sachs repaid the U.S.
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Treasury's TARP investment, with 23% interest (in the form of $318 million in preferred dividend payments and $1.418 billion in warrant redemptions). On March 18, 2011, Goldman Sachs acquired Federal Reserve approval to buy back Berkshire's preferred stock in Goldman. In December 2009, Goldman announced that its top 30 executives would be paid year-end bonuses in restricted stock that they cannot sell for five years, with clawback provisions.
During the 2008 financial crisis, the Federal Reserve introduced a number of short-term credit and liquidity facilities to help stabilize markets.
Some of the transactions under these facilities provided liquidity to institutions whose disorderly failure could have severely stressed an already fragile financial system. Goldman Sachs was one of the heaviest users of these loan facilities, taking out many loans between March 18, 2008, and April 22, 2009.
The Primary Dealer Credit Facility (PDCF), the first Fed facility ever to provide overnight loans to investment banks, loaned Goldman Sachs a total of $589 billion against collateral such as corporate market instruments and mortgage-backed securities. The Term Securities Lending Facility (TSLF), which allows primary dealers to borrow liquid Treasury securities for one month in exchange for less liquid collateral, loaned Goldman Sachs a total of $193 billion. Goldman Sachs's borrowings totaled $782 billion in hundreds of revolving transactions over these months. The loans were fully repaid in accordance with the terms of the facilities.
According to a 2009 BrandAsset Valuator survey taken of 17,000 people nationwide, the firm's reputation suffered in 2008 and 2009, and rival Morgan Stanley was respected more than Goldman Sachs, a reversal of the sentiment in 2006.
Goldman refused to comment on the findings. In 2011, Goldman took full control of JBWere in a $1 billion buyout. In 2011, Goldman Sachs shut down the Global Alpha fund, once the firm's largest hedge funds.
The announcement followed a reported decline in fund balances to less than $1.7 billion in June 2011 from $11 billion in 2007. The decline was caused by investors withdrawing from the fund following earlier substantial market losses. Global Alpha was at one point one of the largest hedge funds in the world, with over $12 billion under management. It was started in 1995 with $10 million. In September 2013, Goldman Sachs Asset Management announced it had entered into an agreement with Deutsche Asset & Wealth Management to acquire its stable value business, with total assets under supervision of $21.6 billion as of June 30, 2013[update].
In April 2013, together with Deutsche Bank, Goldman led a $17 billion bond offering by Apple Inc., the largest corporate-bond deal in history and Apple's first since 1996.
Goldman Sachs managed both of Apple's previous bond offerings in the 1990s. Goldman Sachs was the lead underwriter for Twitter's initial public offering in 2013. At the time, Goldman's position as lead underwriter for Twitter was considered "one of the biggest tech prizes around". Goldman earned approximately $22.8 million in fees from the Twitter IPO; however, the chief economist and strategist at ZT Wealth said, "Goldman being the first name on the S-1 has little to do with fees.
This is about Goldman rebalancing itself as a serious leader and competing with Morgan Stanley's dominant position in technology."
In 2013, Goldman underwrote the $2.913 billion Grand Parkway System Toll Revenue Bond offering for the Houston, Texas area, one of the fastest growing areas in the United States.
The bond will be repaid from toll revenue. In June 2013, Goldman Sachs purchased loan portfolio from Brisbane-based Suncorp Group, one of Australia's largest banks and insurance companies. The A$1.6 billion face amount loan portfolio was purchased for A$960 million.
In August 2015, Goldman Sachs agreed to acquire General Electric Co.'s GE Capital Bank on-line deposit platform.
Terms of the transaction were not disclosed, but the purchase includes US$8-billion of on-line deposits and another US$8-billion of brokered certificates of deposit. The purchase allows Goldman Sachs to access a stable and inexpensive pool of source of funding.
In April 2016, Goldman Sachs launched a direct bank, GS Bank. In October 2016, Goldman Sachs Bank USA started offering no-fee personal loans under the brand Marcus by Goldman Sachs. In March 2016, Goldman Sachs agreed to acquire financial technology startup Honest Dollar, a digital retirement savings tool founded by American entrepreneur whurley, focused on helping small-business employees and self-employed workers obtain affordable retirement plans.
Terms of the deal were not disclosed. In May 2017, Goldman Sachs purchased $2.8 billion of PdVSA 2022 bonds from the Central Bank of Venezuela during the 2017 Venezuelan protests.
In April 2018, Goldman Sachs bought Clarity Money, a personal finance startup, to be added to its Marcus by Goldman Sachs roster.
This acquisition is expected to add over 1 million customers to the Marcus business.
In August 2019, Goldman Sachs joined Wells Fargo, NVIDIA and Nexus Venture Partners to invest in H2O.ai. Under the terms of the deal, Jade Mandel from Goldman Sachs will be joining the H2O.ai Board. 
The company includes 4 business units, as follows:
In 2015, investment banking accounted for 21% of total company revenues.Investment banking includes financial advisory (mergers and acquisitions, investitures, corporate defense activities, restructuring, and spin-offs) and underwriting (capital raises, public offerings, and private placements of equity and debt instruments).
Goldman Sachs is one of the leading M&A advisory firms, often topping the Thomson Financial league tables in sizes of transactions. The firm gained a reputation as a white knight in the mergers and acquisitions sector by advising clients on how to avoid unfriendly hostile takeovers.
During the 1980s, Goldman Sachs was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased the firm's reputation immensely among sitting management teams at the time.
Investing and lending
In 2015, investing and lending accounted for 16% of total company revenues.
Institutional Client Services
In 2017, Institutional Client Services accounted for 37% of revenues.
The segment is divided into four divisions and includes Fixed Income (the trading of interest rate and credit products, mortgage-backed securities, insurance-linked securities and structured and derivative products), Currency and Commodities (the trading of currencies and commodities), Equities (the trading of equities, equity derivatives, structured products, options, and futures contracts), and Principal Investments (merchant banking investments and funds).
This segment consists of the revenues and profit gained from the Bank's trading activities, both on behalf of its clients (known as flow trading) and for its own account (known as proprietary trading).
In 2015, investment management accounted for 18% of total company revenues.
The Investment Management division provides investment advisory and financial planning services and offers investment products (primarily through separately managed accounts and commingled vehicles) across all major asset classes to a diverse group of institutions and individuals worldwide.
The division provides clearing, financing, custody, securities lending, and reporting services to institutional clients, including hedge funds, mutual funds, and pension funds. The division generates revenues primarily in the form of spreads, or management and transaction fees.
GS Capital Partners
Main article: Goldman Sachs Capital Partners
GS Capital Partners is the private equity arm of Goldman Sachs that invests on behalf of institutional clients.
It has invested over $17 billion in the 20 years from 1986 to 2006. One of the most prominent funds is the GS Capital Partners V fund, which raised over $8.5 billion for investment. On April 23, 2007, Goldman closed new investment in GS Capital Partners VI with $20 billion in committed capital, including $11 billion from qualified institutional and high-net-worth clients and $9 billion from Goldman Sachs and its employees. In 2016, the company announced it will raise up to $8 billion for a new fund focused on corporate buyouts, its first new fund since the financial crisis of 2007-2008.
See also: Goldman Sachs Foundation
According to its website, Goldman Sachs has committed in excess of $1.6 billion to philanthropic initiatives since 2008. Goldman Sachs reports its environmental and social performance in an annual report on Corporate social responsibility that follows the Global Reporting Initiative protocol.[non-primary source needed]
The company offers a donor advised fund (DAF) called Goldman Sachs Gives that donates to charitable organizations with an employee donation match of up to $20,000. A 2019 investigation by Sludge of DAFs and hate groups found that Goldman Sach's donor advised fund had not been used to fund any SPLC hate groups, but that the fund did not have any explicit policy preventing such donations.
Controversies and legal issues
Main article: Goldman Sachs controversies
Goldman has been accused of an assortment of misdeeds, including a general decline in ethical standards, working with dictatorial regimes, cozy relationships with the US federal government via a "revolving door" of former employees,insider trading by some of its traders, and driving up prices of commodities through futures speculation. Goldman has denied wrongdoing in these cases.
Lloyd Blankfein owned 0.9% worth about $148.5 million
CEO-to-worker pay ratio
For the first time in 2018, a new Securities and Exchange Commission rule mandated under the 2010 Dodd-Frank financial reform requires publicly traded companies to disclose how their CEOs are compensated in comparison with their employees.
In public filings, companies have to disclose their “Pay Ratios,” or the CEO's compensation divided by the median employee's. According to SEC filings, The Goldman Sachs Group Inc. paid its CEO $21,995,266 in 2017.
The average worker employed by The Goldman Sachs Group Inc. was paid $135,165 in 2017; thus marking a CEO-to-worker Pay Ratio of 163 to 1.As of April 2018[update], steelmaker Nucor represented the median CEO-to-worker Pay Ratio from SEC filings with values of 133 to 1.Bloomberg BusinessWeek on May 2, 2013, found the ratio of CEO pay to the typical worker rose from about 20-to-1 in the 1950s to 120-to-1 in 2000.
Role in the financial crisis of 2007-2008
Goldman has been criticized in the aftermath of the financial crisis of 2007–2008, where some alleged that it misled its investors and profited from the collapse of the mortgage market.
That time in Goldman's history brought investigations from the United States Congress, the United States Department of Justice, and a lawsuit from the U.S. Securities and Exchange Commission that resulted in Goldman paying a $550 million settlement. Goldman Sachs was "excoriated by the press and the public" despite the non-retail nature of its business that would normally have kept it out of the public eye. Visibility and antagonism came from the $12.9 billion Goldman received, more than any other firm, from AIG counterparty payments provided by the bailout of AIG, the $10 billion in TARP money it received from the government (though the firm paid this back to the government), and a record $11.4 billion set aside for employee bonuses in the first half of 2009. While all the investment banks were scolded by congressional investigations, Goldman Sachs was subject to "a solo hearing in front of the Senate Permanent Subcommitee on Investigations" and a quite critical report. In a widely publicized story in Rolling Stone, Matt Taibbi characterized Goldman Sachs as a "great vampire squid" sucking money instead of blood, allegedly engineering "every major market manipulation since the Great Depression ...
from tech stocks to high gas prices".
In June 2009, after the firm repaid the TARP investment from the U.S.
Treasury, Goldman made some of the largest bonus payments in its history due to its strong financial performance.Andrew Cuomo, then New York Attorney General, questioned Goldman's decision to pay 953 employees bonuses of at least $1 million each after it received TARP funds in 2008. That same period, however, CEO Lloyd Blankfein and 6 other senior executives opted to forgo bonuses, stating they believed it was the right thing to do, in light of "the fact that we are part of an industry that's directly associated with the ongoing economic distress".
Goldman Sachs maintained that its net exposure to AIG was 'not material', and that the firm was protected by hedges (in the form of CDSs with other counterparties) and $7.5 billion of collateral. The firm stated the cost of these hedges to be over $100 million. According to Goldman, both the collateral and CDSs would have protected the bank from incurring an economic loss in the event of an AIG bankruptcy (however, because AIG was bailed out and not allowed to fail, these hedges did not pay out). CFO David Viniar stated that profits related to AIG in the first quarter of 2009 "rounded to zero", and profits in December were not significant.
He went on to say that he was "mystified" by the interest the government and investors have shown in the bank's trading relationship with AIG.
Some have said, incorrectly according to others, that Goldman Sachs received preferential treatment from the government by being the only Wall Street firm to have participated in the crucial September meetings at the New York Fed, which decided AIG's fate.
Much of this has stemmed from an inaccurate but often quoted New York Times article. The article was later corrected to state that Blankfein, CEO of Goldman Sachs, was "one of the Wall Street chief executives at the meeting".
Bloomberg has also reported that representatives from other firms were indeed present at the September AIG meetings. Furthermore, Goldman Sachs CFO David Viniar stated that CEO Blankfein had never "met" with his predecessor and then-US Treasury Secretary Henry Paulson to discuss AIG; however, there were frequent phone calls between the two of them. Paulson was not present at the September meetings at the New York Fed.
Morgan Stanley was hired by the Federal Reserve to advise on the AIG bailout.
Sale of Dragon Systems to Lernout & Hauspie despite accounting issues
In 2000, Goldman Sachs advised Dragon Systems on its sale to Lernout & Hauspie of Belgium for $580 million in L&H stock.
L&H later collapsed due to accounting fraud and its stock price declined significantly. Jim and Janet Baker, founders and together 50% owners of Dragon, filed a lawsuit against Goldman Sachs, alleging negligence, intentional and negligent misrepresentation, and breach of fiduciary duty since Goldman did not warn Dragon or the Bakers of the accounting problems of the acquirer, L&H.
On January 23, 2013, a federal jury rejected the Bakers' claims and found Goldman Sachs not liable to the Bakers.
Stock price manipulation
Goldman Sachs was charged for repeatedly issuing research reports with extremely inflated financial projections for Exodus Communications and Goldman Sachs was accused of giving Exodus its highest stock rating even though Goldman knew Exodus did not deserve such a rating. On July 15, 2003, Goldman Sachs, Lehman Brothers and Morgan Stanley were sued for artificially inflating the stock price of RSL Communications by issuing untrue or materially misleading statements in research analyst reports, and paid $3,380,000 for settlement.
Goldman Sachs is accused of asking for kickback bribes from institutional clients who made large profits flipping stocks which Goldman had intentionally undervalued in initial public offerings it was underwriting.
Documents under seal in a decade-long lawsuit concerning eToys.com's initial public offering (IPO) in 1999 but released accidentally to the New York Times show that IPOs managed by Goldman were underpriced and that Goldman asked clients able to profit from the prices to increase business with it.
The clients willingly complied with these demands because they understood it was necessary in order to participate in further such undervalued IPOs. Companies going public and their initial consumer stockholders are both defrauded by this practice.
Use of offshore tax havens
A 2016 report by Citizens for Tax Justice stated that "Goldman Sachs reports having 987 subsidiaries in offshore tax havens, 537 of which are in the Cayman Islands, despite not operating a single legitimate office in that country, according to its own website.
The group officially holds $28.6 billion offshore." The report also noted several other major U.S. banks and companies use the same tax-avoidance tactics.
In 2008, Goldman Sachs had an effective tax rate of only 1%, down from 34% the year before, and its tax liability decreased to $14 million in 2008, compared to $6 billion in 2007. Critics have argued that the reduction in Goldman Sachs's tax rate was achieved by shifting its earnings to subsidiaries in low or no-tax nations, such as the Cayman Islands.
Involvement in the European sovereign debt crisis
Goldman is being criticized for its involvement in the 2010 European sovereign debt crisis.
Goldman Sachs is reported to have systematically helped the Greek government mask the true facts concerning its national debt between the years 1998 and 2009. In September 2009, Goldman Sachs, among others, created a special credit default swap (CDS) index to cover the high risk of Greece's national debt. The interest-rates of Greek national bonds soared, leading the Greek economy very close to bankruptcy in 2010 and 2011.
Ties between Goldman Sachs and European leadership positions were another source of controversy.Lucas Papademos, Greece's former prime minister, ran the Central Bank of Greece at the time of the controversial derivatives deals with Goldman Sachs that enabled Greece to hide the size of its debt.Petros Christodoulou, General Manager of the Greek Public Debt Management Agency is a former employee of Goldman Sachs.Mario Monti, Italy's former prime minister and finance minister, who headed the new government that took over after Berlusconi's resignation, is an international adviser to Goldman Sachs.Otmar Issing, former board member of the Bundesbank and the Executive Board of the European Bank also advised Goldman Sachs.Mario Draghi, head of the European Central Bank, is the former managing director of Goldman Sachs International.António Borges, Head of the European Department of the International Monetary Fund in 2010-2011 and responsible for most of enterprise privatizations in Portugal since 2011, is the former Vice Chairman of Goldman Sachs International.Carlos Moedas, a former Goldman Sachs employee, was the Secretary of State to the Prime Minister of Portugal and Director of ESAME, the agency created to monitor and control the implementation of the structural reforms agreed by the government of Portugal and the troika composed of the European Commission, the European Central Bank and the International Monetary Fund.