Goldman Sach's Profit

Goldman generated $3.44B of profit in the second quarter of 2009. The result wouldn't be paid any attention if it weren't TARP involved. Because of the result, Goldman allocated $11.4B for compensation in the first half of 2009, which was widely interpreted of paying $770K/year for every employee. This payout was also caused criticism. But how did Goldman got super performance to their peers?

In fact, Goldman's investment banking business shrank to a low level, similar to other investment banks. What made them outstanding was mainly trading gain. So what was this trading gain?

Trading gain in Goldman is they buying and selling of securities, with their own money. Since Goldman received TARP money and less competitors (Lehman and Bear Sterns were gone, the others were stranggled in troubles) so they could buy cheap. Other part of income comes from institution traders who use Goldman's services: trading analysis, clearance, hedging, and risk-management. All these generated profits for Goldman. In essence, Goldman is a trader, like any trader in the market who buy and sell and look for risk aversion. But they do this in a much wider scale beyond what typical trader does. They provide services to traders. Traders as small as day-trading ones need to pay attention to these aspects.

Another perspective of Goldman's trading gain is that traders need trading services, regardless of economical conditions. Traders out there still need to trade and hedge their risk. They may loss in the trade but the hedging can offset the loss.

Turning trading into a business is more than just buy-and-sell. Many have tried to explore other opportunities beyond trading: trading educational seminar/classes, analysis, selling books, software, etc. Goldman proves their model works very well.