Goldman Sachs investor day: six slides that say it all
It's Goldman Sachs investor day. For the first time since January 2023, Goldman's most senior and shiny people are taking to the floor and explaining why you should want to invest in and work for the firm.
If you want a summarized version without listening to the best in the business expounding upon their excitement about the Goldman journey and ecosystem, we are bringing that to you right here.
Goldman hiked its returns target and restated its cost target
Last time Goldman Sachs had an investment day, pre-pandemic in January 2020, it was targeting a return on tangible equity of 13%. Today, it hiked that target to 14% to 16%.
Today, Goldman also restated its 60% cost-income target, which it met only once in the past three years, although in 2020 the overshoot was partly the result of a $2.9bn fine associated with 1MDB scandal.
It's ok: the platforms business won't make another loss this year
For the past three years, costs at Goldman Sachs' platform solutions business (including transaction banking, consumer platforms using Goldman's API, GreenSky consumer lending, but not its retail bank Marcus), have exceeded revenues. This year, that won't happen again - although Goldman is only targeting a pre-tax profit in the platforms business by 2025.
Goldman is still all about capital-light fee-based recurring revenues
Speaking today, Goldman CEO David Solomon acknowledged that the firm has "significantly narrowed ambitions" in retail banking, but said that its retail banking efforts so far have - at least - "built a valuable deposit base."
Goldman may be less enthusiastic about retail banking than it used to be, but it's still enthusiastic about the principles that led it to retail banking in the first place: stable, fee-based revenues that don't consume capital and can be relied upon as a stable source of income.
Now, these revenues are due to come from the private bank and asset management businesses.
Goldman is all about "grinding out" durable returns in its investment bank and markets business, and financing is key to this
Dan Dees, Goldman's co-head of global head of banking and markets, spoke a lot about grinding. Goldman has gained share and has every intention of retaining it. "We’re going to grind these wallet shares higher,” said Dees.
Goldman wants to go from serving the top 100 clients to the top 150 clients. It also wants to grind from being in the top three to being the top one or two. Every 100 basis points of wallet share with hedge funds delivers an additional $500m in revenues, said Dees (helping explain why Credit Suisse's equities revenues collapsed after it stopped serving them).
Most of all, though, Goldman is about generating durable revenues and strong returns from its investment bank and markets division, and its financing business is key to this. "The more of this we do, the more durable our revenue stream becomes," declared Dees in reference to financing today. Asset secured lending growth is where it's at, he added, suggesting Goldman might also be interested in any securitisation people leaving CS.
Goldman Sachs is all about its people working together and dealing with clients holistically
Once, it was called cross-selling. Now, it's called "One Goldman Sachs" and comes with the following colored dots. "20 years ago I might have covered this client with just my investment banking team," said Kim Posnett, co-head of the one Goldman initiative. Now, she says Goldman has partners like her who run firmwide teams and "cross-pollinate" across the business.
Goldman Sachs people are special, extraordinary, unusually intelligent, compete hard to get in, stay forever and (at a senior level) are paid all-stock bonuses
Today's presentation includes the following quote from an anonymous investor, extolling the superior intelligence of Goldman's people.
Goldman people are unusual, said chief strategy officer Carey Halio. "We have great people," she added. "Together they are extraordinary...What we have is special and enduringly tough through periods of challenge and change."
In other words, working for Goldman is like a long and sometimes difficult, but ultimately rewarding marriage. Coupled with Goldman's decision to reward senior staff entirely in deferred performance share bonuses, this probably helps explain why many of today's presenters have been at the firm for over three decades.
Anyone wanting to crash this relationship will need to really want it. Goldman also said today that it has 300 applicants per open position (more than in the past) and that it won't be replacing people who leave. Few people are leaving though: turnover is at a low compared to the past few years.
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