Earnings Call, Conference Presentation, Investor Day
A Conversation with David Solomon - Goldman Sachs 2020 Investor Day
Goldman SachsDavid Solomon, Julian Wellesley, Brennan, Mike, Kiana Wilson, Doug, Christian Bolu, Glenn, Betsy, Devin, Steve, John, Gerard Cassidy, Matt O'Connor, Jeff Hart
- Goldman Sachs is actively diversifying its Global Markets client base, moving from heavy reliance on hedge funds to increased penetration with asset managers, though wallet share gaps remain a focus.
- The firm is implementing a "One Goldman Sachs" ethos across over 100 key clients to maximize cross-business relationships and break down internal silos.
- Management defends Global Markets returns relative to cost of capital by contextualizing the business within the broader corporate and investment bank ecosystem rather than analyzing it in isolation.
- The firm has established a three-year target to achieve $1.3 billion in expense efficiencies, with execution described as non-linear and designed to minimize business disruption.
- Key Performance Indicators (KPIs) and progress updates on the three-year plan will be disclosed annually rather than quarterly, with the next formal benchmark scheduled for January 17, 2023.
- The firm plans to release $4 billion of capital from the asset management business by optimizing the mix of equity on the balance sheet versus fund structures, leveraging regulatory stress test assumptions.
- Stephen Scherr stated the firm will not set a specific payout ratio target, opting instead for a CET1 target of 13% to 13.5% to maintain flexibility in capital deployment for accretive growth.
- In Fixed Income, the firm reports regaining market share over the last 18 months, with a specific goal to close a $500 million portion of a $1.2 billion wallet share gap within the current plan period.
- The Consumer and Mass Market Wealth Management business aims to capture share from the 50% of the U.S. consumer banking market currently dominated by regional banks, leveraging digital infrastructure without legacy branch costs.
- Goldman Sachs plans to achieve $125 billion in deposits and $20 billion in consumer loans over five years, with the lending portion kept prudent to manage credit risk.
- The firm is investing in Transaction Banking and Consumer Lending businesses, accepting an initial J-curve period of 3-4 years before these units become profitable, a timeline management compares to its historical 15-year asset management and 25-year international build-outs.
- Management emphasized that the $1.3 billion expense reduction plan targets middle and back-office efficiencies and spans/layers rather than cutting the client-facing footprint, which remains on an offensive growth trajectory.
- The firm is aligning incentives and compensation structures to track "One Goldman Sachs" metrics, moving away from siloed revenue targets to focus on ecosystem performance and long-term value creation.
- CEO David Solomon indicated that while a recession would create variability in ROE, the firm remains committed to long-term investments and possesses levers to pull to maximize shareholder returns during downturns.
- Regarding valuation, management declined to comment on current stock multiples (10x earnings, ~1x book), asserting that delivering on the strategic plan and targets should result in multiple expansion over time.
- Consumer loan growth will be managed prudently, with the firm adjusting its pace based on early data experiences and loss models, noting that current loss rates for unsecured credit and card portfolios align with initial budgets.