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The first few months of David Solomon as managing director of Goldman Sachs have long relied on rhetoric, promising to take the next step in digital and make a rigorous assessment of the company's existing activities, while opening a new era of transparency and introducing a "casual everyday" dress code.
Despite all the talk about the future of one of Wall Street's most venerable institutions, the bank's quarterly update on Monday did not encourage investors looking for signs of Goldman's strategic revival. Its shares fell by almost 4%, bringing their decline since the resumption of Mr. Solomon in October to 11%. This makes Goldman the weakest of the six major US banks since he became managing director.
"Up to here, there has been noise and fury. . . but little in terms of evidence (or progress) or recognition from investors, "commented Mike Mayo, a bank analyst at Wells Fargo, adding that Goldman's book value of 0.95 euro is" the best value for money ". one of its lowest ratings out of crisis of history ".
Jason Goldberg, a banking analyst at Barclays, said that while "progress has been made" since Mr. Solomon took office, "there is still a lot of work to be done".
Here is Mr. Solomon's list of things to do:
The master plan
The master plan to move Goldman into the next era has been the main topic of discussion for investors and analysts since the end of Lloyd Blankfein's 12-year reign as CEO. Mr. Solomon and his team promised to conduct a screening to assess resource allocations and priorities across the company. An update was originally promised in the "spring" of 2019. On Monday, Goldman said the "full update" would be in place in the first quarter of 2020, while promising incremental progress reports. Many analysts were not happy.
"Ultimately, we need to see his strategic plan and implement it before he can really judge it," said Christian Bolu, a banking analyst at Autonomous, who believes that Mr. Solomon "is doing what it takes "trying to progress. the company, moving from slow-growing traditional businesses to faster-growing companies. "
Revamp fixed income
Fixed income trading was the problematic Goldman child when Solomon took office. The bank recorded its worst year of commodities in 2017 and revenues from the bonds, currencies and commodities business – known as the FICC – fell by 22% between 2016 and 2018, triggering criticism that Goldman is not It had failed to capture the secular changes in the sector in recent years.
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Goldman's FICC performance has improved relative to other Wall Street banks over the past two quarters, in part due to weaker fund positions. Although Solomon and his team promised to reorganize FICC to seize today's opportunity, not years of prosperity in the past, concrete information on how this will happen is rare.
When calling Monday's results, executives talked about leveraging technology in all of FICC's business, reducing resources for underperforming segments and investing in more promising sectors. "It's still not clear," Mayo said, adding that even though Goldman had "indicated about a dozen areas of potential growth," he still did not know what they really intended to do.
Revolution of the mass market
Just as the former sales manager, Mr. Blankfein, represented Goldman's face at the pinnacle of FICC, Mr. Solomon – an amateur disc jockey – became the epitome of the future of the mass market of the FICC. bank. Goldman's recent announcement of a credit card with Apple is a milestone in this venture, although the financial impact of this merger is unclear. Mr. Solomon also plans to develop Marcus, Goldman's online banking, and to further engage in the money management of wealthy Americans.
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In the investment bank, Solomon has accelerated Goldman's efforts to serve small business clients, announcing Monday the creation of a team of 100 bankers specializing in investments of less than $ 2 billion. Under Solomon's leadership, Goldman also enters the cash management business, a small business dominated by large commercial banks such as Citigroup, HSBC and JPMorgan Chase.
Bankroll rebound investment
The investment bank – and in particular the consulting sector in which Mr. Solomon has built his career – has been positive since its inception. In the first quarter, Goldman's consulting revenues increased by 51% to $ 900 million, much better than the 12% increase in consulting fees of its competitor JPMorgan's over the same period. Goldman also took the lead on JPMorgan to capture the leading position in M & A and equity markets during the year.
The 1MDB legacy
The fallout from the 1MDB money-laundering and corruption scandal in Malaysia weighs heavily on the early months of Mr. Solomon's presidency. The United States Department of Justice is investigating the bank and Malaysia has sued for $ 7.5 billion for helping the deceased public investment fund raise $ 6.5 billion, including billions of dollars. were looted. Solomon said Monday that "nobody wants to reach a resolution faster than us", but the bank did not know when the situation would be resolved.
Goldman announced in February that she was withholding millions of dollars in payments to three former executives, including Mr. Blankfein, "until more information is available" about "government investigations and inquiries." ongoing "on the 1MDB scandal. In the fourth quarter of 2018, Goldman reserved $ 516 million for litigation and regulatory matters, most of which would relate to 1MDB.
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