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Investment Overview for Goldman Sachs (NYSE:GS)
Below are key drivers of Goldman Sachs' value that present opportunities for upside or downside to the current Trefis price estimate for company's stock:
Bonds, Currencies & Commodities
- Trading Assets for Bonds, Currencies & Commodities : Goldman's FICC operations have historically been its biggest source of revenue. The global bank grew its debt-trading capital from $205 billion at the end of 2005 to $293 billion by 2007. Following the global economic crisis, this figure fell to $246 billion in 2008 before recovering to $290 billion by 2012. But stricter capital requirements and weak debt market conditions over the second half of 2015 forced the figure lower to $174 billion by 2015. As Goldman remains optimistic about improving FICC trading conditions, we currently forecast a 3-4% growth in its FICC trading assets going forward. However, if things don't improve and these assets decline by 2% annually, the total figure would fall to $150 billion by the end of our forecast period. This represents a downside of almost 8% to the Trefis price estimate.
- Yield on Trading Assets for Bonds, Currencies & Commodities: Goldman Sachs' FICC trading yields fell from above 5.5% in 2006-2007 to under 4% in 2008 before rebounding to 8.7% in 2009. Over 2013-15, the figure has largely remained around 4% - with the figure for 2015 being unusually elevated despite a year-on-year decline in revenues due to considerable devaluation in the debt trading portfolio. While we expect yield figures to remain around 4% over coming years, if yields improve to around 6% over the Trefis forecast period, then there will be a 10% upside to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Goldman Sachs at the top of the company page.
Goldman Sachs is a leading global financial services firm with offices in over 30 countries. The company offers investment banking, securities and investment management services to corporate, institutional, government and high-net worth individual clients.
Yields For Equity Trading Business Well Above FICC Trading Yields
The average yield for Goldman's equity trading business over the period 2011-15 has been 7% - compared to a figure of 3.8% for the FICC business over the same period. As a result, the equity business is a bigger source of value despite being roughly two-thirds the size of the FICC trading unit in terms of trading portfolio size.
Growing Asset Management Business
Goldman's assets under management (AUM) have seen significant growth over the last decade, as the banking giant looks for ways to improve profitability even as its cornerstone trading business remains prone to high volatility. Goldman will likely have to focus more on its asset management business as new regulations begin to restrict proprietary trading and risk taking, which is why we see the division as a significant value driver for the company.
Increasing Demand for Investment Banking Services in Emerging Markets
With the GDP of many emerging markets such as China and Brazil growing rapidly, there is an increasing demand for capital from companies in these markets to support expansion. Additionally, with the integration of these markets into the global economy, there is a shift in these countries from family-run businesses to global corporations. Accordingly there is an increasing number of companies going public or raising debt capital, driving demand for equity underwriting and debt origination services. Consolidation across different sectors has also been driving demand for M&A advisory services.
Dominant position in investment banking
Goldman Sachs is a leader in the global investment banking space, with the bank ranking at the top in the global M&A industry for nearly every single quarter over the last decade.
Volcker Rule to Affect Proprietary Trading Desks
The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Goldman's proprietary trading desks account for a sizable percentage of earnings, and the Volcker Rule will affect the bank's trading revenues.
Economic Recovery Should Stimulate the Asset Management Industry
Investors' desire to regain losses that came during the recession could stimulate investments in multi-asset, alternative and equity products, while signs of a broad based recovery in the real estate market would improve prospects in alternative investments.
Long-term trends, including the ongoing shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies, will also positively impact assets under management.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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