Takes a Lickin’ & Keeps on Tickin’

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Goldman Sachs (NYSE: GS)

Source: Dan York

Goldman Sachs (NYSE:GS) seems to have nine lives. The investment banking giant has had many chances to “die” since its 1869 debut as a small commercial paper dealer in a one-room office on Pine Street in New York. The latest near-death escape came during the recent recession.

Right: Goldman Sachs founder Marcus Goldman, early 1900s.

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But Goldman Sachs has come through tougher dilemmas, too. 2008 wasn’t the first time the company suffered big losses in a stock market crash. Driven by its investment unit - Goldman Sachs Trading – the company recorded big losses in the 1929 stock market collapse. And in 1970, another financial crisis occurred for the firm when an $80 million holding went bankrupt.

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TOUGHER DILEMMAS

Despite the turmoil surrounding Goldman Sachs and the economy since the Great Depression, the investment bank has not only survived, it’s prospered. And instead of folding its business, like so many had to do in 1930, Goldman grew into a $ 78 billion money-making machine. In fact, it’s not a stretch to say that the investment bank giant recently became too big to fail.

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As many investors recall, in 2008 failure was an option. More than 43,000 businesses filed for bankruptcy that year, and more than 150,000 businesses have filed for bankruptcy since. But certain corporations are deemed to be so interconnected that their failure would be disastrous to the economy. Therefore, the government has an arguable responsibility – some would go so far as to say duty - to support them should they face hard times.

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Goldman Sachs C.E.O. Lloyd Blankfein and C.O.O. Gary Cohn. Source: Vanity Fair. Annie Leibovitz.

Goldman Sachs was deemed "too big to fail" by Fed Chairman Ben Bernanke and the U.S. government. While that certainly doesn’t assure that the company will always succeed, it does mean that the investment bank can rely on help from U.S. taxpayers if needed.

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Like it or not, Goldman Sachs used its own size to its advantage. After being deemed too big to fail, the company quickly unloaded its position with American International Group to the government at full value. Then management negotiated a $10 billion deal with the government to help support its stock price.

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Source: CNN

The help from U.S. taxpayers paid off … at least for Goldman Sachs. While the company was under this protection, its competition wasn’t. And by the end of the financial crisis in 2009, Goldman Sachs found itself without two previous competitors - Lehman Brothers and Bear Sterns.

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AN END TO THE COMPETITION

Source: The Guardian

only one year after the financial crisis ended, Goldman turned a record profit of $13.39 billion by January 2010. The company has shown the ability to manipulate the system to their advantage and emerge from a hopeless situation stronger than before.

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Not surprisingly,

However, the stock price does not currently reflect the dominance Goldman Sachs has in the financial industry, especially given that Lehman and Bear Sterns are out of the picture.

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Source: Fast C@mpany

Despite reporting record profits two years ago, the shares trade 27% below their peak reached in October 2007. Looking at it from the bottom up, the stock has more than 65% of upside room before hitting that all-time high.

In its lifetime, Goldman Sachs successfully survived three stock market crashes and a worldwide credit crisis. It not only survived those unusual events, it came out ahead of its competition. However, a global slowdown has impacted the company as revenue fell to $8.65 billion in 2013.

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AHEAD OF THE COMPETITION

Still, Goldman Sachs remains highly profitable and the preferred investment bank among its peers.

In 2011, the company continued to rank first in worldwide announced mergers and acquisitions and also ranked first in worldwide initial public offerings.

While its business is strong, Goldman Sachs also has a rock-solid balance sheet. The firm has a 14.6% Tier 1 capital ratio under Basel 1 and boasts $184 billion in core excess liquidity. Total assets were $1.04 trillion too – not bad for a $78-billion market-cap company.

During 2013, Goldman also repurchased 39.3 million of its stock and has been authorized to repurchase an additional 57.2 million shares.

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STATISTICALLY SPEAKING...

But that’s not the only reason to own it – the stock price is less than half of what it was a few years

ago. But its business is fully back to normal. Of course, the shares could easily sink further if the euro breaks up or if China suffers a hard landing. But the stock will likely endure either of those dilemmas, too; it always manages to survive. And investors would likely be rewarded after Goldman Sachs profits from another crisis.

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You don’t have to love Goldman or how they navigated the financial crisis on the back of a bailout. But you have to respect the company’s resilience. If you’re looking for a survivor in bad times and a market leader in good times, Goldman Sachs is a great choice.

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UNPRECEDENTED RESILIENCE

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