Goldman Sachs Industry Report

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Industry Analysis

Financial Services Overview
The financial services industry is one of the most widespread and established industries in the global economy. All companies who have sales from the management of money for either individuals or institutions are included under this umbrella. In the United States alone, according to the Census Bureau 2007 industry report, it included 503,156 establishments, had approximately 6.6 million employees, and had revenues of 3.6 billion dollars. Financial services used to be a safe haven for conservative investors who thought the stocks provided higher than normal dividend yield, stable performance and revenues and some defense against volatility. Within the last decade however, the collapse of global financial economy due to the subprime market and derivatives market falling apart has led to more careful involvement in this industry. Moreover, greater regulation in both the U.S. and overseas has led to more controlled administration of many companies in this industry. This industry is also extremely susceptible to the waves of the economic cycle. The most opportune time to buy is during economic recessions since financial service companies tend to rise out of recession rather fast because interest rates are usually relatively low. Financial investments are typically undervalued during recession when stock prices are low.

Collapse of the Market
Although once considered a conservatives market 2008 and 2009 saw a shift in this thinking due to major issues arising in the financial services industry. Although a long-standing crisis of almost a decade, the collapse of the global economies came when in June 2007 Bear Stearns announced to the world that two of its major hedge funds, totaling in over three billion dollars, were failing. The disaster of these companies arose because they were cripplingly invested in the derivatives market based on the US subprime mortgage market. Additionally in September of 2008 Lehman Brothers, a U.S. investment bank, folded as well. Their meltdown gave headway to the issue of how interlocked and intertwined debt had become in this industry. Liquidity and credit quickly froze globally. Since that market crash international governments have focused on trying to regularize the financial system by putting money into the economy and bailing out banks.

Since the crash banks and financial institutions have had more difficulty raising money and higher quality capitol. Furthermore, a important detail of the crash had to do with global trade imbalance, those of which are a key feature of the global economy. The emerging economies of rising countries such as China and India helped to finance the credit and housing bubbles that emerged in the United States and Europe. Since these countries continue to expand and grow they bring with them large capitol inflows into western economies. Another issue that the crash brought to light was the scandals from the financial institutions themselves. Goldman Sachs was accused of defrauding investors by failing to disclose conflicts of interest between with of its clients, Paulson & Co., and it’s investment decisions in their mortgage portfolio. Goldman Sachs was not the only financial services company to be caught up in scandal however, the sovereign debt crisis in Europe threatened the European banking system and over shadowed the gossip of companies within this industry.

Industry Trends

Near Sourcing
Outsourcing has been one a fast growing trend in the market within the last decade. However, apprehensions about data and security issues, increasing and hidden costs, and revived interest in American employment and quality are leading companies back to the United States. Many firms, especially within the financial services industry, are reverting back to operating in the U.S. This should quickly increase in 2013. Operating Excellence

Cross line-of-business service models can grow a company many benefits...
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