How Does Goldman Sachs Make its Money?
Goldman Sachs is one of the world’s leading investment banks and financial services companies. The firm serves corporations, governments, financial institutions, and high-net-worth individuals through three major segments: Global Banking & Markets (investment banking and trading), Asset & Wealth Management (investing and advising for institutions and the ultra-wealthy), and Platform Solutions (transaction banking and consumer platforms, though Goldman has been rolling back its consumer ambitions).
Revenue Breakdown
| Segment | 2024 | 2023 | YoY Growth |
|---|---|---|---|
| Global Banking & Markets | $34.9B | $28.0B | +24.6% |
| Asset & Wealth Management | $16.1B | $13.8B | +16.7% |
| Platform Solutions | $2.3B | $2.0B | +15.0% |
| Total Net Revenue | $53.5B | $46.3B | +15.5% |
Global Banking & Markets — 65% of Revenue
Goldman’s heritage business:
Investment Banking (~$8.5B):
- M&A Advisory: #1 or #2 globally in most years. Advises on the largest mergers, acquisitions, and restructurings.
- Equity Underwriting: IPOs, follow-on offerings, SPACs. Revenue recovered as IPO activity rebounded.
- Debt Underwriting: Bond issuance, leveraged finance, syndicated loans.
Fixed Income, Currencies & Commodities (FICC) Trading (~$14B):
- Trading in interest rate products, credit, currencies, mortgages, and commodities
- Client execution (facilitating institutional trades) and market-making
Equities Trading (~$12B):
- Cash equities, derivatives, prime brokerage (lending and services to hedge funds)
- Goldman’s equities division is consistently #1 or #2 globally
Asset & Wealth Management — 30% of Revenue
- AUM: $3.1T — Growing through organic flows and market appreciation
- Management Fees (~$10B): The recurring revenue base. Goldman charges basis-point fees on assets under management.
- Private Banking: Advisory and lending to ultra-high-net-worth clients ($10M+ net worth)
- Alternatives (~$315B AUM): Private equity, private credit, real estate, infrastructure. Alternatives carry higher fee rates and are Goldman’s strategic focus for growth.
Platform Solutions — 4% of Revenue
- Transaction Banking: Cash management and payment solutions for corporate clients (competing with JPMorgan Treasury Services)
- GreenSky: Home improvement lending platform (Goldman has been winding down consumer lending)
- Apple Card: Partnership with Apple (Goldman is exiting this partnership)
Income Statement Overview
| Metric | 2024 | 2023 |
|---|---|---|
| Net Revenue | $53.5B | $46.3B |
| Operating Expenses | $33.8B | $31.2B |
| Net Income | $14.3B | $8.5B |
Key Financial Metrics
- ROTCE: 14.6% — Return on tangible common equity. Goldman targets 15-17%. The 2024 result improved significantly from 2023’s 7.5%.
- Compensation Ratio: ~33% — Goldman pays ~33% of revenue as employee compensation — lower than historical averages as the firm improves efficiency.
- Alternatives AUM: $315B — Growing ~20%+ annually. Alternative investments (PE, credit, real estate) are the strategic growth engine because they carry higher fees.
- Book Value Per Share: $351 — Goldman trades at ~1.6x book value, reflecting the premium on its franchise value.
What to Watch
- Investment banking cycle — M&A and IPO activity is recovering from 2022-2023 lows. A sustained recovery benefits Goldman disproportionately as the #1-2 global advisor.
- Alternatives scaling — Goldman is growing its alternatives AUM toward $500B+. Each $100B increase drives ~$300-500M in annual management fees at premium fee rates.
- Consumer exit — Goldman is winding down Marcus (consumer banking), Apple Card, and GreenSky. Exiting consumer simplifies the business mix and removes a drag on profitability.
- Trading revenue volatility — Trading (~50% of revenue) is inherently volatile. Quarters with low market volatility can significantly reduce revenue.
- Capital return — Goldman is returning $10B+ annually through dividends and share buybacks, reducing the share count and boosting per-share metrics.