By Lananh Nguyen and Saeed Azhar
NEW YORK, Jan 27 (Reuters) – To hearken to Goldman Sachs Group Inc chief government 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 Primary 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 take a look at 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 progress numbers: common revenues up 44% over a three-year interval, a 39% soar in ebook worth per share since 2019 that outpaced friends and a much bigger dividend than rivals.
The corporate is being “prudent” on bills by shedding 1000’s, Solomon stated. It is going to additionally shed a few of the $59 billion of different investments that weighed on earnings.
However shareholders wish to know extra concerning the Wall Avenue big’s plans after outcomes fell wanting expectations and one unit misplaced $3 billion over three years.
Solomon provided 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 certainly one of a number of analysts who just lately reduce Goldman’s share worth 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 concept of shopping for the inventory on expectations of a better price-to-earnings ratio “is de facto, actually arduous 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 turn into 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.
Goldman’s strikes into client 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 a substitute, it ought to have adopted rival Morgan Stanley, which earns a gentle stream of earnings 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 course,” stated Tony Fratto, an organization spokesman. The financial institution “is making robust progress on that imaginative and prescient” by bringing in larger charges from asset and wealth administration, maximizing its place in banking and markets, and searching for pretax earnings for platform options, he stated.
Goldman’s strengths in dealmaking and buying and selling additionally make it extra susceptible to financial and market volatility than opponents, 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 not any capital markets alternative — that is not everlasting,” Solomon stated.
In October, Goldman scaled again ambitions for Marcus by inserting it underneath 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 expertise.
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 in all probability want some hand holding” to see the trail to larger earnings.
Jim Lebenthal, a associate 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; Extra reporting by Niket Nishant and Paritosh Bansal; Enhancing by Anna Driver)