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The sentiment “we really should stop meeting like this” is a reality rather than a jest for Goldman Sachs investors. The investment bank’s chief executive, David Solomon, on Tuesday led an investor day to explain where the business is headed after a volatile three years since its last such gathering.
In 2020, Solomon told Wall Street that Goldman should go beyond serving its traditional institutional and corporate clients. It would press into lending to ordinary Americans. That effort floundered amid high start-up costs and rising rates.
Tuesday’s message was that the group has gone back to serving Corporate America — just harder, this time.
Solomon is an embattled boss. But Goldman can still boast real accomplishments. For example, book value per share is up 39 per cent in three years. Return on equity has averaged 15 per cent in that time.
Goldman expects ROE to hold there as a steady state figure. In 2021, a record year for deals and rising valuations, ROE topped out at 23 per cent. Last year, as the market wilted, it fell to 10 per cent.
How would it reach and maintain that magical 15 per cent? First, by growing management fees and cutting capital charges within asset management. That would involve fewer private equity deals using its own balance sheet.
Second, by cutting overheads — and any prospective profits — from what is left of fintech ventures touted three years ago.
Solomon can reputedly be abrasive. He can also be underrated. Keeping Goldman’s best-in-class investment bank and trading businesses humming is a useful ability. Those massive profits have kept the group’s valuation from collapsing.
The trauma of recent months, including a mass lay-off round, has prompted unusual frustration towards the boss. Solomon is asking the group’s diverse tribes, deal bankers, traders, money managers, to work more closely together in taking more from the wallets of clients.
So far, he has demonstrated that no particular rainmaker matters more than the Goldman franchise. In pursuing recurrent 15 per cent ROE, that proposition will be severely tested.
The Lex team is interested in hearing more from readers. Please tell us what you think of Goldman’s positioning in the comments section below.
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