Goldman Sachs Got Tarnished in 2011

The year is coming to a close, so it's a great time to take a look back at the companies you own and how they fared in 2011.

There's no sugar-coating it: It's been a trying year to own Goldman Sachs (NYSE: GS  ) stock. Year to date, Goldman's stock has fallen 44% even though the S&P 500 has managed a slight gain for the year. Of course, a stock's performance doesn't always mirror the company's performance. So let's take a closer look at Goldman's 2011.

A quick look at Goldman Sachs



Source: Yahoo! Finance.

Market Capitalization $45 billion
Total Stock Return Year to Date (44%)
One-Year Net Income Growth (47%)
Trailing Price-to-Earnings Multiple 14
Trailing Price-to-Book Value Multiple 0.68
CAPS Rating ***

Sources: S&P Capital IQ, Motley Fool CAPS.What went down in 2011It was tough for any company to escape the economic woes of 2011 -- whether we're talking about the sputtering recovery in the United States or the abysmal hole that the European Union has ended up in thanks to heavily indebted member countries. For investment banks, those economic factors meant that companies were less interested in raising new capital through debt and equity issuance.

That said, competitively Goldman didn't stack up well through the first nine months of the year. Its total investment banking fees fell 11%, more than the overall industry and far more than competitors such as JPMorgan Chase (NYSE: JPM  ) , Morgan Stanley (NYSE: MS  ) , and Citigroup (NYSE: C  ) , which saw fees fall 3%, 1%, and 4%, respectively. Bank of America (NYSE: BAC  ) , however, saw its fees for the year rise by 3%.

Maybe even more concerning was the bank's performance in merger and acquisition advising in particular, which is a key strength for Goldman's advisory business. Though Goldman continued to top the industry in M&A fees, its fees there fell 7% versus a 2% average increase for the top banks. No. 2 M&A advisor Morgan Stanley saw its fees leap 17%, while JPMorgan's and B of A's fees climbed a respective 10% and 32%.

Of course, the advisory business for Goldman has become less of a focus in recent years as the company has raked significantly more through trading activities and principal investments. For 2010, for instance, 75% of Goldman's revenue came from those areas of the business, versus just 12% from IB advisory.

But if advisory services were hurting in 2011, trading was even worse. Revenue for market making fell by a third through the first three quarters, while principal transactions revenue plunged 87%. The latter was driven primarily by a disastrous third quarter, when Goldman took a $1 billion hit to its stake in Commercial Bank of China, another $1 billion hit to other equity securities, and close to another billion in its debt portfolio.

And in the midst of all of this, Goldman -- like its competitors -- had to navigate a changing regulatory environment. With regulations aimed at making banks less risky, companies like Goldman that thrive on savvy risk-taking may end up hamstrung.

Still gold in banking?
Goldman Sachs may not have had the best 2011, and it may not be the best financial-industry investment out there right now. But that doesn't mean you should avoid banks in general. In fact, some of the smartest investors have shown interest in the banking sector even as the broad market has shunned the group. But which banks should Foolish investors be sniffing around? To find out, grab a free copy of The Motley Fool's new special report, "The Stocks Only the Smartest Investors Are Buying."

The Motley Fool owns shares of JPMorgan Chase, Bank of America, and Citigroup. Motley Fool newsletter services have recommended buying shares of The Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer has no financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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  • Report this Comment On December 31, 2011, at 8:09 PM, cybervigilante wrote:

    If America is to survive, Goldman-Sachs must die. They have done more damage than any other bank and continue to do so with impunity, since this government Refuses to prosecute one of them for monstrous crimes. They have more alumni and influence in Washington than anyone else, including Goldman-Sachs Timmy Geithner, who makes sure banks are not taxed, even though our few remaining factories are.

    If you noticed food prices going up, Goldman got a "special" dispensation from little Timmy to speculate in food, which is normally off limits, since skyrocketing food is a recipe for disaster. But Timmy says what's good for Goldman-Sachs is good for the USA.

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