Goldman Sachs updates its objectives and paves the way for growth

NEW YORK, Feb 15 (Reuters) – Goldman Sachs (GS.N) will update its key financial targets on Thursday and detail its growth plans for the next three to five years, hoping to rally investors who are not still convinced by its long-term objectives. strategy.

Wall Street’s premier investment bank is reshaping itself after a turbulent decade in which profits from its core trading businesses were slashed by tougher regulations introduced after the 2007-09 financial crisis.

The company plans to upgrade some existing targets and add new ones, people familiar with the plan said. Key profitability targets will be raised and new targets set for the growth of the bank’s nascent consumer business. Reuters reported on the upcoming targets in December. Read more

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The bank made a record profit last year, helped by a trading and trading windfall fueled in part by the Federal Reserve which is injecting liquidity into capital markets to mitigate the impact of the COVID-19 pandemic.

Favorable market backdrop helped Goldman move ahead of key targets set on its first-ever Investor Day in January 2020. At that time, Chief Executive David Solomon outlined his vision for rejuvenating a bank that had underperformed its rivals. since fiscal year 2007-09. crisis.

The original plan was to diversify Goldman into businesses with more predictable revenue streams, such as consumer and transaction banking, and to reshape its commercial and investment banking businesses to produce more consistent revenue.

Two years after Investor Day, Solomon will look to build on those foundations when he provides an update on the company’s strategy and goals at a conference hosted by Credit Suisse in Florida, said people familiar with the matter.

Goldman Sachs declined to comment.

The presentation comes at a critical moment. The value of the bank’s shares more than tripled between the start of the pandemic in March 2020, reaching a record high on August 27, 2021. However, they have fallen 14% since analysts wondered how the company was doing. would behave when market conditions normalize. Rival Morgan Stanley is down 4% over the period while JPMorgan (JPM.N) is down 5%.

Goldman shares are currently trading at 1.3 times the value of the bank’s assets while Morgan Stanley (MS.N), traditionally its biggest rival, is trading at nearly 2 times its book value.

This leaves Solomon facing a battle to convince investors that his strategy will lead to repricing over time.

“Morgan Stanley’s well-diversified and proven lines of business put it well ahead of Goldman’s work-in-progress diversification plays into consumer finance, credit cards, wholesale lending and payments,” said David Hendler, founder of Viola Risk Advisers.

The bank will set new medium-term targets for return on equity (RoE) and return on tangible equity (RoTE) of at least 15%, up from previous targets of 13% and 14% respectively, Reuters reported in December. . Read more

Goldman will set new growth targets for its consumer business, people familiar with the matter said. However, he will no longer set a target for when this business will break even. Instead, it focuses on generating revenue growth.

The consumer business, named Marcus after the bank’s founder, was launched in 2016. It was originally expected to turn a profit in 2021, but the cost of investing in new products and acquisitions pushed that timeline back.

In an effort to accelerate growth in its consumer business, Goldman bought GreenSky, a fintech platform that provides home improvement loans, last September in a $2.2 billion deal. It is also investing in launching a Marcus checking account later this year.

The bank is also trying to sustain its core trading and investment banking revenues.

In trading, it does more business with the world’s top 100 institutional clients. This has helped it gain market share that executives are confident it will retain.

In investment banking, Goldman added to its additional strength by advising blue-chip companies on deals by taking greater market share advising middle-market companies.

The bank has also developed its asset management and wealth management activities.

These moves justify the bank raising its medium-term RoTE target despite slowing trading and investment banking activity, according to people at the bank.

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Reporting by Matt Scuffham; edited by Megan Davies and Nick Zieminski

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