‘Flailing’: Wall Street’s rock star chief feels heat as billions wiped away
By Simon Foy
On a balmy Friday in late July last year, David Solomon hopped on his company’s Gulfstream G650 private jet bound for Chicago.
The chief executive of Goldman Sachs was headed to the Windy City for meetings with employees and clients. Yet his main engagement that weekend was a very different sort of gathering, taking place just a 10-minute drive from Goldman’s Chicago office in Grant Park: Lollapalooza.
The four-day music festival boasted worldwide stars including Metallica, Dua Lipa and Green Day on its line-up. Solomon – who moonlights as a DJ in his spare time and goes by the name DJ D-Sol – was also performing.
Dressed in a black T-shirt, the 60-year-old father of two was videoed doing his best Fatboy Slim impression as a group of young revellers bounced around to his roster of hits.
In a post on his personal Instagram account, Solomon said: “Lolla was full of special moments, but this was the best” in a nod to a performance of his song Learn To Love Me. Yet while DJ D-Sol is clearly having a good time, Goldman Sachs’ investors are finding it difficult to love Solomon. Profits at Goldman Sachs have been falling for more than a year as a misfiring bet on consumer lending wracks up billions in losses. The bank’s share price has lagged rivals since Solomon took charge in 2018 and doubts about his strategy are growing louder, with one City analyst saying Goldman is “flailing”.
Solomon attempted to get shareholders back on side by hosting only the second investor day in Goldman’s 154-year history.
In an olive branch to disgruntled investors, Solomon pledged to explore “strategic alternatives” for its loss-making consumer business.
Since taking charge, he has pushed headlong into retail banking under Goldman’s Marcus brand and through credit card partnerships with Apple and General Motors.
Last year it bought GreenSky, a point-of-sale lender. This is a far cry from the corporate M&A work that Solomon, a veteran investment banker, made his name doing.
The strategy has not paid off. Earlier this year, Goldman revealed that its newly formed consumer lending and fintech unit had suffered $US3 billion in pre-tax losses since 2020.
“It became clear that we lacked certain competitive advantages and that we did too much too quickly,” Solomon conceded, pledging to stop losses at the division by 2025.
Goldman has already sidelined its retail bank Marcus, announcing at the end of last year that it was folding the business into its wealth management division as part of a reorganisation. “We’ve narrowed ambitions in the consumer space,” Solomon said. “We will do what’s right for Goldman Sachs, we’re focused on it and we will execute appropriately.”
Solomon is under growing pressure to improve performance after continually lagging behind stock market rivals in recent years.
Critics argue that the bank’s historic strengths in investment banking and trading make it more suited for a pre-financial crisis era.
“Sometimes we fall short. Sometimes we don’t execute. But we always learn and adapt.”
David Solomon’s message to investors at the firm’s AGM.
New regulations force banking giants to hold much higher levels of capital than they once did, making trading strategies less profitable.
Goldman is also more vulnerable during periods of subdued market activity, such as last year’s dealmaking drought following Russia’s invasion of Ukraine, than rivals with broader businesses.
The bank has been trying to diversify its business for years but has struggled. Profits plunged by two-thirds in the final quarter of 2022, representing the fifth consecutive quarter of falling profits. The quiet deals market and the mammoth losses at its consumer unit have forced Goldman to embark on its biggest cost-cutting drive since the financial crisis. In January, it announced it was cutting more than 3,000 jobs, while it has also reduced bonuses and launched a sweeping review of spending in an attempt to rein in costs.
Solomon told investors: “Sometimes we fall short. Sometimes we don’t execute. But we always learn and adapt.”
Brennan Hawken, an analyst at UBS, told Bloomberg: “It’s not good to see Goldman flailing. There’s a perception that all the partners are not singing from the same hymn book. It leads investors to conclude that the CEO might be losing confidence of the partners. And that is worrying.”
Analysts are concerned that there is no quick fix for Goldman’s malaise. Michael Wong, an analyst at Morningstar, said: “Earnings could continue to be subdued for the next year or more, as the economic environment remains uncertain, which should pressure investment banking and asset management revenue.”
Solomon yesterday reaffirmed a target for return on tangible equity – a key measure of profitability for banks – of 15 per cent to 17 per cent, which was higher than its target in previous years. However, the target is still lower than rivals Morgan Stanley and JPMorgan.
Bosses at Goldman believe its $US2.5 trillion asset and wealth management business is key to unlocking future growth.
Solomon told CNBC: “The real story for growth for us is asset management and wealth management. There’s a real opportunity for us to continue to make the firm more durable.”
However, the investor day appeared to do little to quell investor concerns: shares in the bank closed more than 3 per cent lower in the US.
Meanwhile, Solomon also warned that operating in China will get tougher over the next few years.
Shareholders looking for reassurance may take succour from the latest post on Solomon’s personal Instagram account, promoting his new track featuring German DJ TMW. The title of the song? Nothing I Won’t Do.
Investors will be hoping that attitude applies to turning around the stumbling Wall Street giant.
Telegraph, London
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