Earnings Call, Investor Day
Financial Roadmap - Goldman Sachs 2020 Investor Day
- The firm aims to achieve a Return on Equity (ROE) exceeding 13% and a Return on Tangible Equity (ROTE) of 14% in the medium term, with expectations of mid-teens returns or higher over a five-year or longer horizon.
- Medium-term targets include an efficiency ratio of approximately 60%, a CET1 ratio at the lower end of the 13% to 13.5% range, and a reduction in the cost of funds by 30 basis points.
- Revenue growth of $3 billion to $5 billion is anticipated in the medium term, driven by $2 billion to $3 billion from incumbent businesses and $1 billion to $2 billion from new initiatives.
- Incumbent business growth is projected across investment banking, global markets, and private wealth management (PWM), fueled by expanding the global footprint, increasing financing activity, and growing asset management.
- New revenue expansion is expected to stem from scaling the transaction banking platform, the third-party alternatives business, and consumer banking offerings for high net worth and mass affluent clients.
- The firm is committing to a three-year, $1.3 billion expense initiative intended to deliver a 350 basis point improvement to the efficiency ratio, complemented by revenue growth (600 basis points) and funding optimization (125 basis points).
- Capital management strategy involves reducing unsecured funding from 50% to a higher long-term level, refinancing approximately $20 billion of maturing vanilla debt with roughly $5 billion of issuance in 2019 and continuing this activity in 2020.
- The firm plans to shift the asset mix by reducing on-balance sheet equity investments in alternatives while growing more traditional banking activities to lower stress loss intensity and Supplementary Capital Buffer (SCB) density.
- Funding optimization initiatives are expected to generate approximately $1 billion in revenue uplift in the medium term, while refinancing efforts aim to shorten the overall duration of funding to better match asset duration.
- Consumer and transaction banking businesses are expected to break even within a three-year timeframe, with new initiatives and investments potentially maturing slower than anticipated before becoming accretive.
- Global Markets segments are targeted to achieve a 10% ROE in the medium term through revenue growth, operational efficiency, reduced funding costs, and scaling the transaction banking business.
- Capital allocation will be directed toward capital-efficient, higher-growth opportunities while withdrawing capital from businesses that fail to demonstrate adequate returns, with capital attribution data shared quarterly.
- Shareholder returns will be optimized by increasing dividends over time as the business mix becomes more durable, with a focus on maximizing the payout ratio subject to meeting capital targets.
- Risk management frameworks will be enhanced with external talent, dynamic monitoring of late-cycle and cyber risks, and strict oversight of unsecured consumer credit, with fraud, anti-money laundering, and cyber risks prioritized in new scale businesses.
- Financing activities in Global Markets, such as Prime and Repo, are expected to remain secured and appropriately structured, while the firm adapts to regulatory changes and potential higher GSIB surcharges.
- The path to achieving these targets is described as non-linear, with variable top-line growth, though efficiencies and expense savings are expected to be more predictable and within the firm's control.
- The firm intends to exceed the stated financial targets and maintain accountability to deliver long-term shareholder value, while remaining agile enough to pivot as conditions evolve.