May 07 2006
Economist on Goldman Sachs
An interesting article on Goldman Sachs.
Some quotes, data, info:
From small beginnings in 1987, the face value of contracts in interest-rate and currency derivatives is now more than $200 trillion—16 times America’s GDP. A further $17 trillion is outstanding in (even newer) credit-default swaps.
The face value of Goldman’s derivatives exposure is more than $1 trillion … (net) is $58 billion, against shareholders’ funds of $28 billion. … In the past decade it has garnered revenues of more than $125 billion.
The bank likes to say that it still relies a lot on traditional investment banking, but Goldman’s accounts show that its profits come increasingly from trading.
Risk management into software: It applied this by building a proprietary technology system, shunning the off-the-shelf products used by many of its competitors. People who have left Goldman say that this system is unmatched at rivals.
Any crisis would affect Goldman, because it is so intertwined with the system. At worst, the bank itself—or, more likely, a second-tier rival or a hedge fund—might fall into the kind of dramatic spiral that killed off (LTCM).