Goldman Sachs Group Inc’s Chief Executive David Solomon faces a reality check from investors on Tuesday as he presents plans to reach key financial goals.
At only the second investor day in Goldman’s 154-year history, shareholders will gather in downtown Manhattan to assess the Wall Street giant’s roadmap after the high-profile flop of its consumer business, Marcus.
“It’s a pretty important investor day,” said Mike Cronin, investor director at fund manager abrdn, which owns a stake in the bank.
While Cronin said that the bank’s leadership could get the job done, “there’s definitely some debate about the path forward here, just given some of the missteps” and the gap between Goldman’s promises and what it has delivered.
Investors will also judge whether the company can hit its target for return on tangible equity (ROTE), a measure of performance that compares profit versus shareholder equity.
Last year, its ROTE dropped to 11%, lagging peers and falling short of analysts expectations. That compares with 24.3% in 2021, a blockbuster year, reflecting how volatile Goldman’s earnings can be.
The company needs to provide a “credible plan” to reach the medium-term target of 15% to 17%, Cronin said.
Solomon’s performance will also be scrutinized. The consumer business that he championed lost $3 billion in almost three years and its operations are being probed by regulators. Marcus’s woes also weighed on fourth-quarter earnings, which fell dramatically short of analyst expectations.
The results prompted investors and analysts to ask what comes next.
“We’ve set a clear strategic direction and we’re looking forward to sharing more on our plans to continue to deliver for shareholders at investor day,” said Tony Fratto, a company spokesman.
Solomon typically serves as Goldman’s statesman, addressing conferences, speaking to media and posting a steady stream of photos to his LinkedIn page. But ahead of the Feb. 28 gathering, members of Goldman’s top brass have joined in, granting rare press interviews to tout the company’s performance. It’s a big shift for a bank that has traditionally shunned attention.
In 2020, Solomon kicked off Goldman’s inaugural investor day by telling participants they should feel free to “break into open applause.”
The tone may be more somber this year after the company laid off about 3,200 employees. The CEO’s pay was reduced 29% to $25 million for 2022 amid a challenging operating environment.
Goldman’s stock has outperformed most top US banks since Solomon took the helm in 2018, but trailed rival Morgan Stanley. Goldman shares edged 0.5% lower in pre-market trading on Friday, in line with peers.
Its board approved a share buyback of up to $30 billion, according to a regulatory filing on Friday.
Goldman trades at a price-to-book ratio, which measures the value of a company’s stock, of 1.19, less than Morgan Stanley’s 1.78 and JPMorgan Chase & Co’s 1.39.
The bank will probably miss its return target this year and next, said Mike Mayo, an analyst at Wells Fargo. Its headcount and compensation expenses should be reduced, given the worsening economic outlook and sluggish dealmaking, he said. Losses from the consumer business will also be a drag on earnings.
COST CUTS
Goldman will probably need to make deeper cost cuts “given the ongoing uncertain revenue environment,” Daniel Fannon, an analyst at Jefferies, wrote in a note.—Reuters
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