— Ch. 1 · Founding And Early Growth —
Goldman Sachs.
~5 min read · Ch. 1 of 6
In 1869, Marcus Goldman opened a one-room basement office next to a coal chute in New York City. He began by financing commercial paper for small entrepreneurs who needed short-term cash. The firm grew slowly until 1882 when his son-in-law Samuel Sachs joined the business. By 1885, Henry Goldman and Ludwig Dreyfuss had entered the partnership and the company adopted its current name. The firm pioneered the use of commercial paper as a tool for funding businesses without hard assets. It joined the New York Stock Exchange in 1896 with capital standing at $1.6 million. Goldman entered the initial public offering market in 1906 when it took Sears Roebuck and Company public. This deal was facilitated by Henry Goldman's personal friendship with Julius Rosenwald. Other major IPOs followed including General Cigar Company in 1906 and F.W. Woolworth Company in 1912. The firm established the price-earnings ratio as a method for valuing companies instead of relying on book value. In 1912, Henry S. Bowers became the first non-family member to become a partner and share in profits. Henry Goldman resigned in 1917 under pressure from partners due to his pro-German stance during World War I. The Sachs family regained full control until Waddill Catchings joined in 1918. By 1928, Catchings held the largest stake among all partners. The firm launched the Goldman Sachs Trading Corporation on the 4th of December 1928. This closed-end fund failed during the Wall Street Crash of 1929 amid accusations of share price manipulation.
Leadership Transitions And Strategy
Sidney Weinberg assumed the role of senior partner in 1930 after the Great Depression forced out Waddill Catchings. Weinberg shifted the firm's focus away from trading and toward investment banking to restore its reputation. Under his leadership, Goldman advised Ford Motor Company on a $657 million IPO in 1956. The firm also handled a $350 million debenture offering by Sears Roebuck in 1958. Gus Levy joined as a securities trader in the 1950s when two powers fought for supremacy within the company. Levy pioneered block trading and built Goldman's trading franchise once again. He took over Weinberg's role as Senior Partner in 1969. Levy is credited with developing the philosophy of being long-term greedy. Partners reinvested nearly all their earnings back into the firm under this strategy. In 1970, Penn Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding. Most of it had been issued through Goldman Sachs. The resulting lawsuits threatened the partnership capital and survival of the firm. Stanley R. Miller directed the opening of the first international office in London in 1970. John Weinberg and John C. Whitehead became co-senior partners in 1976. They established 14 business principles to guide operations. On the 16th of November 1981, the firm acquired J. Aron & Company which merged with Fixed Income to form Fixed Income, Currencies, and Commodities. Lloyd Blankfein joined the firm as a result of this merger. The headquarters moved to 85 Broad Street in 1983. Goldman formed Goldman Sachs Asset Management in 1986. Robert Rubin and Stephen Friedman assumed co-senior partnership in 1990. Rubin left in 1992 to work for President Bill Clinton. Jon Corzine became CEO following Friedman's retirement in 1994. Henry Paulson became chairman and chief executive officer after Corzine stepped down.