Goldman Sachs: New Financial Goals, With Existing Fears

As the trading market on Wall Street fades, so does the love of shareholders for Goldman Sachs.

Since the start of the year, shares of the Wall Street investment bank have fallen 11%, even as the KBW Bank index has gained 3%. Worse still, the valuation gap with rival Morgan Stanley, which narrowed last year, has opened again.

David Solomon took the opportunity to attract investors on Thursday. In a wide range PresentationsSolomon sets a new three-year return on tangible equity (ROTE) target of 15 to 17%, up from the previous target of at least 14%.

But rather than reassurance, the new target, much lower than the 24.3% delivered in 2021, only confirms any concerns that last year’s exceptional market conditions won’t be repeated anytime soon. again.

Compare the new Goldman target with that of rival Morgan Stanley, which promises a ROTE of at least 20%, or even with JPMorgan’s 17% target. Those differences justify Goldman’s lower earnings and book multiples.

Investors in financial services award recurring revenue. This explains why Morgan Stanley, with its strong investment and wealth management businesses, trades at 1.9 times its book rate. At Goldman, its more volatile trading and investment banking units accounted for more than two-thirds of its revenue last year. Its rating is just 1.2 times the book and 9 times future earnings, also below its rivals.

Buying European asset manager NN Investment Partners and buying now, fintech postpaid GreenSky last year underscored Solomon’s efforts to build a more sustainable revenue stream.

More importantly, Goldman promises to raise revenue at its Marcus consumer business from $1.5 billion in 2021 to over $4 billion in 2024. In terms of wealth and wealth management, it projected fees of more than $10 billion by 2024.

These are ambitious goals. Combined, they will account for 28% of Goldman’s 2024 revenue. However, these are crowded and competitive industries. Expect to spend more to expand these businesses – at the expense of share buybacks. Investor skepticism is well deserved.

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