One Year Later: Goldman Sachs's amazing rebound

Updated

The financial crisis crystallized the realities of systemic risk -- the idea that in certain panic-stricken environments, no company reliant on functioning credit markets is safe, even if it is fundamentally sound on its own merits.

No company may have been hurt more by guilt-by-association during the market's meltdown than Goldman Sachs (GS), widely recognized to have been the best positioned investment bank entering the fall of 2008. As Bear Stearns and Lehman Brothers went under, the competitive landscape was theoretically clear for Goldman to make sizable market share gains. But the same reliance on short-term financing and market fears of potentially hidden risks in the company's assets forced drastic changes.

Goldman joined Morgan Stanley in becoming a bank holding company, transitioning away from the high-leverage investment bank model to gain access to emergency lending facilities created by the Federal Reserve to stabilize credit markets. At the same time, Goldman was also early in raising equity capital from Berkshire Hathaway, effectively gaining the endorsement of Warren Buffett as it bolstered its balance sheet. On that day, Goldman stock traded at $120; it entered this weekend nearly one year later at $175, even as the worst economic macro-environment since the Great Depression continues to unfold.

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