NEW YORK, Jan 27 (Reuters) – To hearken to Goldman Sachs Group Inc (GS.N) Chief Govt David Solomon, the financial institution is doing “nice,” whereas skeptical traders surprise what comes subsequent.
Days after Goldman reported disappointing earnings that despatched shares tumbling 6%, and months after it stepped again from a money-losing foray into Foremost Avenue banking, Solomon sat for an interview with Reuters in Davos, Switzerland the place he highlighted the agency’s hits — and downplayed its misses.
“Good firms ought to make investments and innovate and check out new issues. And by the best way, if you do, you are not going to all the time get it proper,” Solomon stated on the World Financial Discussion board’s annual gathering final week.
He then reeled off Goldman’s development numbers: common revenues up 44% over a three-year interval, a 39% bounce in e-book worth per share since 2019 that outpaced friends and an even bigger dividend than rivals.
The corporate is being “prudent” on bills by shedding 1000’s, Solomon stated. It’ll additionally shed among the $59 billion of other investments that weighed on earnings.
However shareholders need to know extra in regards to the Wall Avenue large’s plans after outcomes fell wanting expectations and one unit misplaced $3 billion over three years.
Solomon supplied few specifics on future technique, however these particulars might come on the firm’s investor assembly on Feb. 28 in New York.
“Buyers stay skeptical,” stated Joe Rava, an fairness analyst at abrdn, which owns shares within the financial institution.
David Konrad of Keefe, Bruyette & Woods was one in all a number of analysts who just lately lower Goldman’s share value goal, noting that it suffered from “an ideal storm of declining revenues in a difficult market.”
And for UBS analyst Brennan Hawken, who charges Goldman at impartial, the thought of shopping for the inventory on expectations of a better price-to-earnings ratio “is basically, actually onerous proper now.”
Nonetheless, Goldman shares are up 3.6% over the previous yr, outperforming the S&P 500 banking index and friends.
Since taking the helm in 2018, Solomon has tried to diversify Goldman past its conventional powerhouses of buying and selling — which languished after the 2008 monetary disaster — and funding banking. However these divisions have grow to be much more dominant, comprising 69% of the agency’s income on the finish of final yr, versus 58% the yr Solomon took over.
The CEO additionally championed Marcus, a retail banking enterprise that faltered even because it attracted greater than $100 billion in deposits.
The corporate slashed Solomon’s pay by 29% to $25 million for 2022. It cited a “difficult working surroundings,” but in addition famous his “efficient management,” in line with a submitting.
Goldman’s strikes into shopper lending and transaction banking had been “head scratchers,” stated Kush Goel, senior analysis analyst at asset supervisor Neuberger Berman, which owns the financial institution’s inventory. As an alternative, it ought to have adopted rival Morgan Stanley, which earns a gentle stream of revenue from wealth-management charges, he stated.
Goldman’s asset and wealth administration unit generated 34% of its income within the fourth quarter, whereas Morgan Stanley derived 63% of its income from comparable divisions.
“Goldman Sachs has set a really clear strategic path,” stated Tony Fratto, an organization spokesman. The financial institution “is making sturdy progress on that imaginative and prescient” by bringing in better charges from asset and wealth administration, maximizing its place in banking and markets, and looking for pretax earnings for platform options, he stated.
Goldman’s strengths in dealmaking and buying and selling additionally make it extra weak to financial and market volatility than rivals, stated Hawken at UBS.
Solomon, who rose to the highest job from funding banking, stated that division is “doing nice,” regardless of charges falling 48% final yr as offers dried up. “There is no capital markets alternative — that is not everlasting,” Solomon stated.
In October, Goldman scaled again ambitions for Marcus by putting it below the newly-merged asset and wealth division. It additionally swept components of the enterprise into a brand new unit known as platform options, which homes transaction banking, bank cards and monetary know-how.
Whereas platform options made up solely 3% of Goldman’s income, it accounted for about 64% of the $2.72 billion the financial institution put aside final yr for potential credit score losses. The corporate stated it was required to spice up provisions to fulfill accounting requirements.
David Wagner, a portfolio supervisor at Aptus Capital Advisors, stated “traders will most likely want some hand holding” to see the trail to better earnings.
Jim Lebenthal, a companion at Cerity Companions who manages shopper portfolios together with shares of the Wall Avenue behemoth, stated it ought to play to its strengths.
“Going again to what has made Goldman nice for many years will enable the agency to reset and get better,” he stated.
Reporting by Lananh Nguyen and Saeed Azhar; Further reporting by Niket Nishant and Paritosh Bansal; Modifying by Anna Driver
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