A 'humbling' for David Solomon? Economist refers to his investment bank as 'Goldman Sags' in cover story.
By Steve Gelsi
Economist says the only exceptional thing about Goldman Sachs lately has been its meltdown
Goldman Sachs is on the front page of a major business publication and not for good reasons.
This week's Economist magazine features a melting blue Goldman Sachs Group Inc. logo with the name "Goldman Sags" inside it, as the tough month for the marquee investment bank continues.
From disclosing billions in losses on its consumer banking push and doing a U-turn on the business, to a fresh probe by the Federal Reserve, to widely missing its lowered fourth-quarter earnings targets -- Goldman Sachs (GS) has had a tricky time.
Coming up now is its Feb. 28 investor day, when CEO David Solomon is expected to outline how his plans for the bank laid out three years ago remain mostly on track.
Still, some Wall Street watchers appear to have their doubts.
The Economist's article entitled "The Humbling of Goldman Sachs" depicts the bank's challenge in reinventing itself after being outshined in 2022 by rivals JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS).
Goldman Sachs remains trapped within the confines of Wall Street's traditional investment banking businesses, where it's known for a hard-driving culture.
Meanwhile "the real action" in finance is happening in less-regulated areas such as Blackstone Inc.'s (BX) role in private markets, or BlackRock Inc.'s (BLK) index fund business or Citadel, which made $16 billion last year in trading and investing, the article said.
"The firm is not yet in serious trouble, but it is trapped by its own mythology," the article said. "Its recent struggles show how hard it will be to reform--and illuminate a new balance of power in global finance."
The Economist article marks the latest pop culture moment for Goldman Sachs.
In the wake of the 2008 global financial crisis, Goldman was famously described by Rolling Stone magazine writer Matt Taibbi as a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
Taibbi highlighted the revolving door between Goldman and Washington, D.C., where Henry Paulson held the position of Treasury secretary from 2006 to 2009 after working as CEO of Goldman.
The bank took another hit in 2009 when then-CEO Lloyd Blankfein told the Sunday Times its bankers were doing "God's Work" when asked about its generous bonuses. The remark appeared tone deaf in the wake of the crisis, which led to huge job losses and hardship for many families.
"We help companies to grow by helping them to raise capital," Blankfein told the newspaper. "Companies that grow create wealth."
Goldman stood by its business in trading, advising on deals and private market investing after the financial crisis, even as JPMorgan Chase reinvented itself as a vast bank across many businesses, while Morgan Stanley refocused on reliable profits from advising wealthy clients.
Current CEO David Solomon, who took over from Blankfein in 2018, expanded the bank's role in transaction banking and built up its asset and wealth management arms. He also hatched plans for Marcus, a consumer bank that would attract lucrative deposits and offer credit card services with Apple Inc. (AAPL).
While Goldman has managed to widen its market share in M&A advisory business and in parts of its vast trading operations, its consumer banking push proved costly for the 15 million customers it won.
"Investors think that Goldman is worth only the net book--or liquidation--value of its assets, suggesting they doubt that it can generate consistently high returns or find lucrative new areas," the economist article said.
Nowadays, Goldman also faces more competition from international challengers such as Citic Securities in China, as well as Kotak Mahindra and Axis Bank in India.
It's also lagging in digital markets with a customer base that's far below that of giants such as PayPal (PYPL) or Amazon.com (AMZN), the article said.
Goldman Sachs stock is up 3.4% so far in 2023, while Morgan Stanley stock has risen 13.5% and JPMorgan Chase is up 4.4%. The Dow Jones Industrial Average has risen 2.% in 2023 and the S&P 500 is up by 5.8%.
Also Read:Goldman Sachs touts effort to reduce balance sheet after tough week for stock
-Steve Gelsi
(END) Dow Jones Newswires
January 27, 2023 10:00 ET (15:00 GMT)
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