According to a Securities and Exchange Commission (SEC) filing, in 2011 The Goldman Sachs Group Inc. (GS) recorded $103 million loss in the Asian market. Prior to this, during the financial crisis in 2008, Goldman recorded loss of $1.74 billion in Asia for the first time.
In 2010, the company reported net profit of $2.1 billion in Asia. The 2011 loss was driven by low performance in Investing & Lending segment as equity markets significantly dipped in Asia during 2011. Reported results also included a mark-to-market loss of $517 million from investment in the ordinary shares of Beijing-based Industrial & Commercial Bank of China Ltd. (ICBC).
Moreover, Asian net revenues also came down 46% year over year in 2011 to $3.86 billion, attributable to unfavorable credit markets, negatively affected by increased concerns regarding the destabilized state of global economies.
In April 2006, initially Goldman acquired 4.9% stake in ICBC for $2.58 billion before the lender’s initial public offering. Since then, over the years, the bank has raised $5.26 billion through three stake sales in ICBC.
However, in 2011, stocks in Asia, mainly Chinese bank stocks performed poorly, reflecting slowing Chinese economy. Therefore, in October 2011, Goldman reported net loss for the third quarter 2011, including a loss of $1.1 billion from the bank’s investment in ICBC.
In November 2011, Goldman raised $1.54 billion by selling 2.4 billion of its shares in ICBC. Prior to this sale, Goldman held 11.68% stake in ICBC worth $6.7 billion.
Like other Wall Street biggies such as Bank of America Corporation (BAC) and JPMorgan Chase & Company (JPM), the company has been buckled under the weakness in the wider economy and the fundamental pressures on the banking sector.
In January, Goldman reported a 67% fall in 2011 earnings compared to the prior year. The company has targeted approximately $1.4 billion in run-rate compensation and non-compensation expense reductions through reduction in total number of employees and planned expenditures. The firm is trying to recoup the losses it has incurred by boosting its revenues.
Goldmanis working seriously on its acquisition and global expansion strategies.Last week, the company announced that it is planning to purchase Ariel Reinsurance’s Bermuda-based insurance and reinsurance operations from Ariel Holdings Ltd. The terms of this deal were undisclosed; however, it is expected to close on April 1, 2012.
In addition to that, the company agreed to purchase 4.8% stake in Mongolia’s Trade and Development Bank, thereby becoming one of those foreign banks who have shown interest in the Mongolian economy. The company’s stake buyout in the Mongolian bank indicates its plan to gain exposure in a Mongolian economy, whose growth is stimulated by the developing resources of the country.
Moreover, Goldman Sachs Asset Management (GSAM), a wing of Goldman alsoannounced its plan to purchase Vermont-based Dwight Asset Management Company from Old Mutual Asset Management (OMAM).
Through acquisitions and global expansions, Goldman is trying to grab every opportunity to leverage its strong reputation in the corporate trust market. The expansion mode of the company is mounting since the beginning of 2012. Completion of deals, like the aforementioned ones, will enable the bank to enjoy a better position in the ongoing uncertain global economic scenario compared to its peers.
Goldman currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.
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