The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.
NEW YORK (
is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals.
It competes with
We estimate that equity underwriting and debt origination constitutes around 7% of
, which is in line with the current market price.
Goldman's Facebook Investment
Goldman Sachs' recent investment in Facebook valued the company at roughly $50 billion. The firm invested $450 million of its own money and was planning to offer Facebook shares to high net-worth individual investors in the U.S. through a private placement. The firm planned to raise around $1.5 billion from this offer.
However, the move was met by severe criticism due to perceived conflicts of interest and potential private placement regulatory concerns. As a result, Goldman decided to pull the offer away from U.S. investors, instead turning to foreign investors not subject to the same restrictions.
Indirect Benefits of the Facebook Deal
It seems that the deal could still fulfill indirect objectives for Goldman. First, the deal provides clues about Goldman's private equity strategy in the wake of the Volker regulations, a part of the Dodd-Frank financial reform bill that puts a cap on the amount of proprietary capital that banks can use to make investments.
The reform bill gives the banks a significant number of years to comply with the new regulations. Goldman, backed by its substantial balance sheet, could be utilizing this grace period to pursue some very profitable deals.
Another potential motivation for Goldman could be its positioning for managing a possible Facebook IPO in the future. One Wedbush Securities analyst has suggested that Facebook could potentially be worth $200 billion by 2015. At such a high valuation, an opportunity to manage the company's IPO would allow Goldman to gain significant market share in its equity underwriting business.
With more regulations on proprietary trading expected in the future, it makes sense to expand other business lines in order to remain competitive in the investment banking industry.
Goldman's Share of Global Equity Underwriting
Goldman's share of global equity underwriting fell from 9.7% in 2006 to 8.4% in 2007, largely due to increased fragmentation in the industry, with local players in emerging markets providing these services at a discount to the fees charged by Goldman Sachs.
Going forward, we expect a similar trend to continue, with Goldman's market share falling to around 8% by the end of our forecast period. However, if Goldman is able to manage the Facebook IPO in (let's estimate) 2015, its market share and stock value could see a notable uptick.
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.