Long considered one of the more venerable investment banks on Wall Street, GS's strong banking and trading operations, combined with its ingrained focus on risk management, and a more stable capital base following its initial public offering, place the firm among the industry's powerhouses. GS's trading and investment banking businesses comprise the lion's share of the firm's returns. Investment banking remains the cornerstone of the firm's operations, and is positioned advantageously on a global basis as evidenced by the success it has realised in garnering mandates amidst the fervent activity in Europe. Also serving to strengthen GS's margins is its strong positioning in the higher margin underwriting disciplines of common stock and IPO's, which has been supported as of late by its focus on the Internet and technology in general.
Trading also plays a very important role in the firm's bottom line results.
While the majority of GS's trading revenue emanates from customer flow activity, the firm actively employs proprietary strategies including arbitrage and block trading, which engender higher risk reward scenarios, and therefore bring an added degree of volatility to the firm's income stream. This factor, along with the more modest contribution provided by the firm's asset management business, and the lack of recurring revenue generated by a substantial retail franchise, leave the firm's earnings mix more susceptible to the investment environment than its larger rivals. The risk management procedures are well-defined and, despite the firm's new status as a public company, GS's credit culture remains more akin to the conservative type espoused by a limited partnership structure. Funding at GS exhibits good diversification. Equity generation at the firm has remained strong throughout the 1990's.