Goldman Sachs – From commercial paper business to investment banking


Back in 1869, Marcus Goldman, a German immigrant, moved to the New York City with his family and opened a one-room basement office near coal chute at 30 Pine Street in Lower Manhattan. Goldman offered the local merchant an alternative during tight and expensive bank credits. He would purchase their promissory notes and then sell the notes to New York’s commercial banks. This ultimately made them the inventor in the commercial paper business.

Along with his son, Henry Goldman, in 1885 and son-in-law, Samuel Sachs, in 1892, Marcus Goldman’s enterprise became a corporation with a new name: Goldman, Sachs & Co. Also, the firm joined the New York Stock Exchange in 1896, and Goldman Sachs became a leader in commercial paper sales. With the growth in the client base of the firm, it opened its offices in Chicago and Boston (1900), San Francisco (1918), and Philadelphia and St. Louis (1920) and became a national firm.

In 1897, Goldman Sachs established relationships with financial firms in major European capitals, providing a collection of services that included letters of credit, gold shipments, foreign exchange, and arbitrage. 

On the other hand, 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- IPO for Sears Roebuck and General Cigar, both in 1906, the firm broke new ground in making equity and debt securities more attractive to investors. The conglomerate adopted a unique method by introducing the idea of valuing issues on the basis of goodwill and the company’s earning power as an alternative of solely on its physical assets.

Mr. Wall Street

Sydney J. Weinberg, popularly known as “Mr. Wall Street”, was named as senior partner of Goldman Sachs in 1930. He is considered the father of modern-day Goldman Sachs as he served as a senior partner for nearly 40 years. Although his early years at Goldman Sachs were difficult ones as he guided the firm through the financial turbulence of the Great Depression, after the end of World War II, both Goldman Sachs and the US economy had risen at an increasing rate.

For the next quarter-century, the conglomerate evolved into one of the leading full-service investment banks in the US. This increased the influence of Sydney Weinberg and he came to be known as “Mr. Wallstreet”. He was focused on the financing side of the business. On the other hand, Gus Levy, who joined the firm in 1933 and was named a partner in 1945, built the most formidable trading and equity sales capabilities in the industry, besides pioneering the practice of block trading in the process. In the 1950s, the conglomerate formed its New Business Department to provide the services of its corporate finance specialist and to assure the continuity of client relationships.

On the other hand, the conglomerate proved its strengths in the areas of sales, trading and underwriting, started managing the underwriter of the largest common stock and industrial bond issues of an era: a $350 million debenture offering for Sears Roebuck (1958)—$3.1 billion in 2020, and a $657 million initial public offering for Ford Motor Company (1956)—more than $6.3 billion in 2020.

From the late 1950s to the early 1960s, to serve its clients, the conglomerate employed more than 500 people. The conglomerate, now a leader in private finance, was building the same position in municipal finance. By establishing one of Wall Street’s first mergers and acquisitions department, the firm also set another industry standards. On the other hand, the celebration of the centennial year was marked by sadness at the passing of Sidney Weinberg.  Gus Levy, parallel to this, succeeded him as senior partner.

In 1969, the Real Estate Department was formed, setting the stage for the firm’s leadership in the sales and financing of major commercial properties. As global capital markets grew, the financial and business needs of the firms were becoming more international. It opened its first overseas department in London in 1970, followed by offices in Zurich and Tokyo in 1974. With the establishment of the Fixed Income Department in 1972, the firm gained prominence in trading and underwriting across a wide range of corporate and government debt markets.

After the death of Gus Levy in 1976, John C. Whitehead and John L. Weinberg, Weinberg’s son, became a chairman and co-senior partner of the management committee. During the tenure of “the two Johns”, managing financial risk became important to successfully directing complex markets. Again, the firm proved itself as an industry leader by developing successful strategies that featured innovative products including Swaps, Options, and Futures. Apart from this, John Whitehead drafted a set of 14 business principles in 1979 defining Goldman Sachs and what it stands for.

In the 1980s and early 1990s, the conglomerate also increased its complementary business by creating Goldman Sachs Asset Management (GSAM) in 1988 and the principal investment area in 1991. 

As Goldman Sachs expanded its activities, it continued to spread its global reach. In 1984, it began Equities trading in Tokyo which allowed the firm to provide around-the-clock exposure of major capital markets. Afterward, in 1985, the conglomerate was selected as one of the first six non-Japanese firms to join the Tokyo stock exchange. Goldman Sachs, on the other hand, became the first international securities company allowed to open a banking subsidiary in 1991 in Japan. As the countries of Western Europe moved toward a single market, the firm continued expanding its operations in Europe. At the same time, the London office grew to more than 1,000 people, becoming the firm’s largest operation after New York.

 

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