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Exclusive: Goldman Sachs plans shift from revenue goal at first investor day

Published 11/11/2019, 06:09 AM
Updated 11/11/2019, 06:13 AM
Exclusive: Goldman Sachs plans shift from revenue goal at first investor day

By Matt Scuffham and Elizabeth Dilts Marshall

NEW YORK (Reuters) - More than two years ago, Goldman Sachs Group Inc (N:GS) told investors it would find $5 billion in fresh annual revenue by 2020. Now, the bank may move away from that goal to focus on a wider range of metrics.

The new targets, to be outlined by Chief Executive David Solomon's management team in January at Goldman's first-ever investor day, could include a broad efficiency ratio and profitability measures, four sources familiar with the matter said.

They could also include narrower items, such as goals for Goldman's fledgling retail bank, Marcus, according to some of the sources, who spoke on condition of anonymity.

The change of focus signals that Goldman wants to match rivals that disclose progress toward broader targets, and satisfy demand among investors for transparency across all the bank's businesses, according to the sources, who cautioned that plans for the investor day are still taking shape and could change.

The shift also illustrates how, under pressure from investors unhappy with a near-20% fall in its share price since March last year, Goldman is having to overhaul the way it communicates with shareholders.

"Right now the story is we're Goldman Sachs, trust us and we'll generate good returns. The collective investment community is saying that doesn't cut it," said Wells Fargo (NYSE:WFC) analyst Mike Mayo. "They need to provide something that increases confidence so, for the first time ever, they're going to lift the curtain behind the scenes at Goldman Sachs."

Goldman declined to comment on the $5 billion goal or what new targets might be unveiled at the investor event in January. It referred Reuters to an interview on Tuesday in which Solomon said there would be no major disclosures.

"We've got very, very good businesses that we're very proud of and we'd like to evolve those businesses a little bit. I wouldn't expect any big reveal," he told Bloomberg TV.

The $5 billion target was at one time a crucial benchmark for whether Goldman could transform itself from a Wall Street trading house with stalling profits into a more diversified bank with potential to grow, analysts said.

In the early days of his tenure it was also an important metric for Solomon, who took the reins from longtime CEO Lloyd Blankfein in October 2018. The 57-year-old was a key architect of Goldman's overhaul plan in his prior role as operating chief, sources within the bank said.

Goldman executives said a year ago that the bank was ahead of schedule on the $5 billion goal.

There is a lot of appetite among investors for information about Goldman's progress reducing its reliance on unpredictable trading revenues and growing more stable businesses, some analysts said.

Solomon had initially planned to launch a strategic update in the spring of 2019. But he postponed it until January, saying he wanted to get it right rather than rush it.

Goldman has had little choice but to re-invent itself.

The bank's profits were stifled by tougher regulations after the 2007-2009 financial crisis, changing customer preferences and technology shifts that made some businesses less profitable.

Goldman was also more skewed than its rivals toward trading, and it has seen pretax earnings in that part of the business fall 84% from 2009 to 2018, according to regulatory filings. Those profits are down another 7% so far this year.

Goldman shares are trading at 0.9 times the value of its assets, among the lowest of the biggest U.S. banks.

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