Goldman's
income from trading activities has grown at a hefty rate for the first quarter
of fiscal 2006, which constitutes 74.8% (55% in 2001) of its pre-tax earnings.
It is a clear indication that Goldman has changed its focus from investment banking
to a business model, which suits the current scenario. The new business opportunities
are available as the US is spending a lot of money to buy goods from the outside
world. According to one estimate, the US buys goods worth $2.25bn daily from the
outside world. The result of this huge transfer of wealth is enormous money supply
for the rest of the world.
Many
analysts are criticizing the change in the business model of Goldman because according
to them, income from new sources is not sustainable and there is great risk in
trading activities. Goldman is always criticized for not disclosing the full facts
about its business. The recent Q1 income which was more than 50% of the estimates
confirms the views of analysts that some part of the Goldman Sachs' business is
a black box.
While
this new face of a traditional investment bank is irritating to some investors
and analysts, investment banking income in Q1 was only 5% of the total income,
which is suitable to the new environment. New area of income for the world's financial
system is trading activities and Goldman is changing itself according to that.
It is not that only Goldman is changing but others are also following the same
path and Q1 income of Morgan Stanley's confirms the new trend. Around 40% income
of this bank has come from principal transactions and income from fixed income
trading and equity trading has shown a hefty growth at 70% and 40% respectively. |
