Goldman Sachs chief executive David Solomon has reaffirmed plans to expand in asset and wealth management and pledged to stop losses at its consumer lending and financial technology business by 2025.
In presentations for an investor day, Goldman reiterated old targets, urged shareholders to look at results over a three-year period rather than disappointing financial numbers in 2022 and laid out a timeline to sell the bank’s volatile investments made with its own capital.
Solomon will address shareholders on Tuesday morning in New York amid internal dissent around job cuts and an unsuccessful foray into consumer banking.
He is trying to convince investors that he can transform Goldman into a bank that will generate predictable revenues and therefore merits a higher stock market valuation. The knock on Goldman’s legacy trading and investment banking businesses, which provide the bulk of profits, is that they are too cyclical.
“The real story for growth for us is asset management and wealth management,” Solomon told CNBC on Tuesday morning. “There’s a real opportunity for us to continue to make the firm more durable.”
Solomon’s pitch for a more durable Goldman is three-fold: to operate more efficiently, to win market share in investment banking and trading, and to expand in asset and wealth management to generate the stable fees that are highly prized by investors.
The pitch is similar to the one laid out in 2020 at the bank’s first-ever investor day, though now missing is an emphasis on consumer banking. Goldman last year decided to pare back its “Main Street” ambitions through its Marcus brand following shareholder unease around escalating losses.
Solomon stuck with a return on average tangible common equity — a key measure of profitability — of 15 to 17 per cent. This was up from a previous target of more than 14 per cent, but still lagging behind longtime rivals Morgan Stanley and JPMorgan Chase, which at present command higher stock market multiples than Goldman.
Goldman maintained a $225bn gross fundraising target for its alternatives in asset management by 2024, as well as goals to earn company-wide management and other fees of more than $10bn.
The bank also disclosed it now expected a refashioned financial technology business named Platform Solutions — which includes its credit card partnerships and GreenSky, the point-of-sale lender Goldman acquired in 2022 — to be pre-tax break-even by 2025. The road map could help allay shareholder concerns about the division, which lost $1.7bn in 2022.
“We tried to do too much,” Solomon told CNBC. “On the places where we’ve fallen short, we will reflect and we will learn.”
Goldman gave more detail about its plans to sell most of its so-called on-balance sheet investments, a remnant of the era when the bank would wager its own capital in areas such as private equity and real estate.
It said it had about $30bn of these legacy investments at the end of 2022. It aims to reduce these to less than $15bn by the end of 2024 and sell them all in the next three to five years. The plan is to replace these earnings over time with management and performance fees from investing third-party funds.
