Goldman Sachs: Staying Ahead of the Curve

October 29, 2008

Goldman Sachs has reported of plans to cut 10% of their current workforce, further adding to the list of job losses on Wall Street. According to CoreBrand’s syndicated tracking data, their brand power has been chipped away by the failing financial industry over the past several quarters. Considering the constant shifting of power within the industry as failing brands go bankrupt, get seized, or get acquired by competitors, it can only be guessed as to whether this move by Goldman Sachs will be sufficient enough, or merely a short-term plug for a leaking ship.

Alan Greenburg, former Chairman and CEO of Bear Stearns, was on Charlie Rose last night (10/22/08) and commented that the collapses in the financial industry showed that the “Investment Bank” model does not work, and is a thing of the past. This is in contrast to the “Traditional Bank” model. Investment banks that are highly leveraged, (as much as 40 to 1), verses traditional banks (typically less than 10 to 1), are much more vulnerable to “runs” on the banks, brought about by rumors.

Once the rumors start, institutional investors pull their money from investment banks to protect their investors, and the banks collapse. They are highly vulnerable in this way – much more so than traditional banks. Greenburg added that Goldman Sachs was in “a class of their own”, in terms of investment banks. Yet not even Goldman Sachs is fully immune to the effects of the rumors pulling down their competitors. By becoming a “traditional bank” over the past few weeks, Goldman Sachs has been able to save themselves for the worst effects of the current financial crisis and the devastating effects of rumors.

It should be noted though, in defense of Goldman Sachs, their brand power is still 3.2 points above the industry average, and 2.7 points above CoreBrand’s database average for the 2nd quarter of 2008. They are still a solid brand and a respectable company, doing what they feel is necessary in this uncertain economy. We can only wait and see if their efforts are effective, or if more substantial measures will be necessary to keep this brand off the acquisition block.

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