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Goldman Sachs is the second largest investment banking company out there. Goldman Sachs revenues for 2022 were $47 Billion. Out of this Goldman Sachs's profits for 2022 was $10-11 Billion. Still, after the results were released two days ago, the impact on the stock market was very negative. The stock price of Goldman Sachs came down 6%. This is because the bread and butter division, that is the investment banking division’s revenues were down by 48%.
In this video, we covered what Investment Bankers do, how investment bankers make money, and what is currently happening in the market. Let’s look into what do investment bankers do. Let’s assume that if you want to sell a house or any other piece of property there will be an intermediary connecting us. If the transaction goes through, the intermediary will benefit. Both the seller and buyer have certain expectations. Such as the seller wants a great price for the house while the buyer wants to get a great house at a great price and if he/she is looking for a loan then it should be available at lower interest rates.
So, why are Goldman Sachs revenues down? In the investment banking scenario, the investment bankers like Goldman Sachs are these intermediaries. If it is just two individuals trying to sell and purchase a piece of property then there is no problem. But if there are two companies involved in a deal of merger or acquisition then there are too many people who have to go through this process. There is due diligence involved to verify if the claims made by both parties or true or not.
Goldman Sachs starts working as an intermediary and even if the deal doesn’t go through, you have to pay them. So how do investment bankers make money? What is the investment banking role? There are multiple ways through which these guys make money. One of them fixed monthly income and subsequently, if the deal goes through then you have to pay them a success percentage. In the current market, both the buyers and sellers are unwilling to get into a deal. If you are wondering what investment bankers do then in simple terms they handle the large M&A activities for different corporations for which they get paid. What investment bank does is simply facilitate investment for a large corporation.
This is why the revenues of Goldman Sachs are going down. Sellers are saying that since the market is down if they sell right now they’ll get a lower price. If they wait a little longer, they may get a higher price. Buyers on the other hand are thinking that the interest rates are high so we should wait until the interest rates come down before buying a company. What is investment banking's role? It is to see to it that such M&As go through properly and the concerned parties don’t have to suffer unnecessary losses. According to BCG report the M&A activities have down by 30% in 2022.
Compared to J. P. Morgan, Goldman Sachs stock was more badly hit. This is because J. P. Morgan’s business is much more diversified than Goldman Sachs. Goldman Sachs's CEO has said that they are looking at other divisions to diversify their business. This is a very logical move. But what can you as an individual learn from this? First is that you should also try to diversify your income streams. Second M&A is a very interesting topic, the total market sentiment and how the economy is doing, you can understand it all by going through a few M&A studies. You can go through the playlist I’ve created on M&As. Hope you found this video helpful, please let me know if you want me to make a video on any other topic.
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