Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Goldman Sachs (GS) Survive Coronavirus?

No business could be in more danger from America’s apparent decline than Goldman Sachs (GS).

Many people think of the historic investment bank as Wall Street. Yet, I think the world’s financial capitol just moved to Shanghai. To explain, Shanghai’s Star Market is hosting the IPO of the year: that of Ant Group.

The biggest new company around Ant Group tried to hold its $34.5 billion initial public offering (IPO) in Shanghai and Hong Kong while snubbing New York. 

Did Goldman Sachs Miss the IPO of the Year?

Startlingly, STAR Market traders made $2.9 trillion (19.1 trillion Yuan) in bids for Ant Group, Markets Insider estimates. Additionally, Hong Kong buyers made $168 billion (1.3 trillion Yuan) in bids for Ant shares.

Incredibly, traders oversubscribed Ant’s Shanghai offering by 872 times Market Insider claims. Moreover, traders oversubscribed Ant’s Hong Kong offering by 389 times.

Ant Group claims that it its IPO could raise more cash than any other offering in history. Yet Goldman Sachs (NYSE: GS) is on the sidelines because they planned to hold the Ant IPO in Shanghai and Hong Kong.

However, Chinese regulators blocked the Ant Group IPO on 3 November 2020. Reuters claims officials blocked the IPO because of Communist Party anger at Ma’s criticism of Chinese banks. Reuters speculates that Chinese officials could hold up the Ant Group IPO for several months.

I suspect the People’s Bank of China (PBOC) stopped the IPO out of fear that Ant’s financial products could be unstable and bring down the whole Chinese economy. I think Chinese leaders fear the Republic could become too dependent on unstable financial products. Dependence on such products caused the US financial meltdown of 2007-2008.

Much of Goldman Sachs’ business comes from its reputation as New York’s top investment bank. Yet, New York could no longer be the world’s financial capitol. Goldman could have to change its business to deal with that reality.

Whether the throttling of the Ant Group IPO sends financial markets back to New York remains is unknown. Although my personal suspicion is that markets will head to London or Singapore instead. That can benefit Goldman Sachs (GS) which has office in those cities.

How Much Money is Goldman Sachs Making?

Goldman Sachs (GS) is still one of the most lucrative companies around. Goldman reported a quarterly gross profit of $9.87 billion and quarterly operating income of $4.549 billion on 30 September 2020.

Impressively, Goldman’s quarterly operating income rose from $1.291 billion on 30 June 2020. However, Goldman Sachs’ quarterly gross profit fell from $12.350 billion on 30 June 2020. Notably, Goldman’s quarterly gross profit is larger than the $7.47 billion reported on 30 September 2019.

Goldman Sachs’ quarterly revenues fell from $13.295 billion on 30 June 2020 to $10.781 billion on 30 Septembers 2020. Thus, Goldman Sachs is still an impressive moneymaking machine despite a -$1.586 billion operating income on 30 September 2020.

Goldman Sachs still has Enormous Value

Unfortunately, Stockrow did not provide cash flow figures for Goldman Sachs for 30 September 2020.

Goldman Sachs had $382 billion in cash and short-term investments on 30 September 2020. The cash and short-term investments fell from $406.225 billion on 30 June 2020.

Additionally, Goldman Sachs’ total assets fell from $1.142 billion on 30 June 2020 to $1.132 billion on 30 September 2020. Thus, Goldman Sachs still has enormous value. Thus I consider Goldman Sachs’ a value investment despite the global financial capitol’s move to Shanghai.

Ant Group Threatens Goldman Sachs

Strangely, Ant Group; the owner of Alipay could be the greatest threat to Goldman Sachs (GS) in Asia. To elaborate Ant has become a major player in wealth management in Asia.

Ant’s wealth management unit; InvestTech, had $570 million (four trillion) in assets under management in March 2020, Techcrunch claims. Bloomberg estimates Ant had $173 billion in its Yu’ebao proprietary money market fund in 2020. Yu’ebao is the world’s largest proprietary money market fund, Reuters claims. Ant’s InsureTech unit works with over 90 Chinese insurers.

Ant offers mutual funds from 20 managers, including American giants Invesco and Vanguard. Ant’s InvestTech unit facilitated 4.1 trillion Yuan ($610 billion) worth of investments through Yu’ebao through June 2020. Yu’ebao and InvestTech offer third-party products from 170 asset managers.

Goldman Sachs is a FinTech Company

Thus Ant Group is building wealth management products to compete with Goldman Sachs’ Marcus products. To explain, Marcus is Goldman’s artificial intelligence powered savings and lending platform.

Currently, it could be illegal for Ant Group to operate in the United States. However, Ant could buy an American company or bank, or license its algorithms to another company.

A similar threat is that PayPal (NASDAQ: PYPL) could launch a wealth management product. Notably Square (SQ) allows people to invest in both cryptocurrency and stocks through its Cash App.

The Real Threats to Goldman Sachs

Thus, the genuine threats to Goldman Sachs could be Fintech companies such as Ant, PayPal, Square, and Robin Hood. Consequently, Goldman Sachs’ employment of thousands of engineers is a smart move.

Similarly, a smart move for Goldman Sachs could be to use its enormous stash of cash to buy Square, Robin Hood, Coinbase, Block.One, or even PayPal. Another smart move for Goldman Sachs could be to become Ant’s American partner and float an Ant USA IPO.

To explain, the Donald J. Trump (R-Florida) administration is allowing another Chinese tech company ByteDance to operate its TikTok social media in North America through TikTok Global. TikTok Global will be a publicly traded US company 80% owned by ByteDance but partially owned by Oracle (ORC) and Walmart (WMT).

A smart move with Goldman Sachs could be to team with Walmart (WMT), TikTok Global, and Oracle (NASDAQ: ORCL) to operate Ant USA or Ant North America. That way, Goldman Sachs could own and operate Alipay USA and combine it with Marcus.

Note it is unclear how the administration of President Elect Joe Biden (D-Delaware) will treat TikTok Global. However, I think Biden will allow TikTok Global if goes through fast; and is underwritten by a big politically connected American bank, such as Goldman Sachs. Since the next Treasury Secretary will probably come from Goldman Sachs, I think GS will have enormous influence on the Biden administration.

Is Goldman Sachs a Value Investment?

I consider Goldman Sachs (GS) a value investment because Mr. Market reasonably priced it at $201.26 on 6 November 2020.

In addition, Goldman Sachs will pay a great dividend of $1.25 on 30 December 2020. If you are looking for a cash-rich value investment, Goldman Sachs Group (NYSE: GS) is still a superb choice. Therefore, I consider Goldman Sachs a tremendous income stock because it generates enormous amounts of cash and pays a big dividend.  

Therefore, Goldman Sachs is not just surviving Coronavirus. Goldman Sachs is thriving in the COVID-19 era. If you need a safe, cash-rich stock or a FinTech company in your portfolio, Goldman Sachs is worth a look.