6829417439_2b40bb41c8How does Goldman Sachs make money?

Ever wondered how Goldman Sachs gets money to pay exorbitant bonuses to its employees? For example, in 2011, Goldman Sachs paid around £8 billion in pay, bonuses and shares to its employees around the world. Before the 2008 crisis, Blankfein, the CEO of Goldman Sachs (in 2007) was awarded a cool $67,900,000 in bonuses [1]. To put that in perspective, the median household income in America during the same period was around $52,673 (0.077% of what Blankfein earned) [2]. So how exactly does Goldman Sachs make such huge amounts of money in the first place?

Fortunately for us, since Goldman Sachs is a publicly traded company, it is obliged to reveal its statement of earnings to the public. According to its filings, for the year ended 2011 its net revenues stood at $28.81 Billion. Lets break that down into its various components to get a clear picture at how it arrived at that figure.

Goldman Sachs describes its business under 4 broad segments which are its 4 “I’s”.

1) Investment Banking
The traditional investment banking activities include stuff such as advising on Mergers & Acquisitions, underwriting of public offerings/private placements (Simply put, valuating the price of a company to determine the share price during an IPO), risk management for firms among other things. It earns a fee/commission on such activities. More »