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The Goldman Sachs Group, Inc.
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== Risks == As with any investment, investing in Goldman Sachs carries a level of risk. Overall, based on the Goldman Sachs's adjusted beta (i.e. ccc)[13], the degree of risk associated with an investment in Goldman Sachs is 'ccc'. Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. Goldman Sachs faces a variety of risks that are substantial and inherent in its businesses. The following is a summary of some of the more important factors that could affect its businesses: === Market === * The company's financial performance and future prospects could be negatively impacted by adverse conditions in the global financial markets and broader economic landscape. * Exposure to declining asset values, particularly in cases where Goldman Sachs holds net "long" positions, receives fees based on managed asset values, or deals with collateral, may pose risks to the company's business outlook. * Market volatility changes could influence the company's market-making activities. * Market uncertainty and lack of investor and CEO confidence resulting from economic downturns and unfavorable economic, geopolitical, or market conditions have already affected, and may continue to affect, the company's investment banking, client intermediation, asset management, and wealth management businesses. * The company's asset management and wealth management divisions might face challenges if its investment products underperform or clients prefer alternative offerings with lower fees. * Inflation's negative effects could continue to impact the company's overall business performance, financial results, and fiscal condition. === Liquidity === * The company's liquidity, profitability, and operations could be adversely affected in case it encounters difficulties accessing the debt capital markets or faces challenges in asset sales. * Business disruptions or lack of liquidity in credit markets, reduced credit access, and higher borrowing costs may impede the company's operations. * Downgrades in credit ratings or increased credit spreads could have an adverse impact on the company's liquidity and funding costs. * As a holding company, the company's liquidity relies on payments and loans from its subsidiaries, which are subject to legal, regulatory, and other restrictions on providing funds or assets. === Credit === * Deterioration in the credit quality of third parties or defaults by them may have adverse effects on the company's businesses, profitability, and liquidity. * Concentration of risk increases the potential for significant losses in the company's market-making, underwriting, investing, and financing activities. * The company faces credit risk exposure through derivative transactions and potential delays in documentation or settlements, which could lead to unexpected risks and losses. === Operational === * Any failures in operational systems, human errors, malfeasance, or other misconduct may hinder the company's liquidity, disrupt its operations, compromise confidential information, damage its reputation, and cause financial losses. * Infrastructure failures or disruptions, whether in the company's own systems or those of third parties, could negatively impact liquidity, disrupt operations, harm the company's reputation, and result in financial losses. * Inadequate protection of computer systems, networks, and client information against cyber attacks and similar threats may impair the company's ability to conduct business, lead to data breaches, damage its reputation, and result in financial losses. * Ineffectiveness in risk management processes and strategies could expose the company to potential losses. === Legal and Regulatory === * The company's businesses, along with those of its clients, are subject to extensive global regulation. * Proper identification and management of potential conflicts of interest are crucial to safeguarding the company's business interests. * Increased governmental and regulatory scrutiny or negative publicity could adversely affect the company's operations. * Substantial legal or regulatory actions could have severe financial consequences or cause significant reputational damage to the company, thereby affecting its future business prospects. * Operating globally exposes the company to political, legal, regulatory, and other inherent risks associated with conducting business in multiple countries. * Implementation of regulatory strategies for resolving large financial institutions might result in increased risk of loss for the company's security holders. === Geopolitical === * The company's business performance, financial condition, liquidity, and results of operations may be susceptible to disruptions in the global economy caused by geopolitical events. * Notable geopolitical events, such as escalating tensions between the U.S. and China, the Russian-NATO conflict, and Gulf tensions, have the potential to impact the company's operations. === Third Parties === * The company may face challenges if parties, including trading counterparties, customers, and financial intermediaries, fail to fulfill their obligations to Goldman Sachs. * Close interconnections among financial institutions, based on credit, trading, clearing relationships, etc., can result in liquidity issues, losses, or defaults by other institutions, including Goldman Sachs. * The accuracy and completeness of credit risk information used by Goldman Sachs may impact the company negatively. === Competition === * The composition of the client base could influence the company's financial results. * The financial services industry is characterized by intense competition. * The rise of electronic trading and the introduction of new products and technologies, including cryptocurrencies, have intensified competition. * Attracting and retaining qualified employees is crucial for the company to maintain its competitive edge. === Market Developments and General Business Environment === * Unforeseen or catastrophic events like pandemics, terrorist attacks, extreme weather events, or natural disasters could have adverse effects on the company's businesses, financial condition, liquidity, and financial results. * Climate change poses potential disruptions to the company's operations and could affect client activity levels and counterparties' creditworthiness, potentially impacting the company's reputation. * The discontinuance of Interbank Offered Rates (IBORs), particularly USD LIBOR, could adversely affect certain businesses and funding instruments. * Changes in other reference rates, currencies, indexes, baskets, or ETFs that Goldman Sachs offers or raises funding against may have adverse impacts on certain businesses and funding instruments. * New business initiatives and acquisitions introduce enhanced risks as the company engages in new activities, operates in different locations, transacts with diverse clients and counterparties, and explores new asset classes and markets. * Realizing expected benefits or synergies from acquisitions or other business initiatives might not occur as planned or within the expected timeframe.
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