Summary
- Goldman Sachs is moving into the future under the leadership of David Solomon, who took over the CEO's position in October 2018 and became Chairman in January 2019.
- Mr. Solomon has the task of changing the Goldman Sachs culture to be in tune with current markets and current competition from other big banks.
- Goldman's return on tangible capital was 10 percent for 2019, not bad but not in the same ballpark of its large rivals; it is in the process of catching up.
Goldman Sachs Group Inc. (NYSE:GS) is in the early stages of the restructuring of the company. It is running behind the pack.
David Solomon, who has just completed one year at the helm of Goldman Sachs, is attempting to take his bank and make it more JPMorgan (NYSE:JPM)-like.
The model Goldman is trying to achieve, according to Laura Noonan of the Financial Times, is that of JPMorgan Chase & Co., who is now the gold standard among the biggest US banks. It is JPMorgan Chase that has put up a 19 percent return on tangible capital for 2019. It is JPMorgan that is performing at the top in most areas, quarter after quarter. It is JPMorgan, among the big banks, that has moved out in terms of financial technology.
The irony of this is not missed.
Ms. Noonan quotes Mike Mayo, banks analyst at Wells Fargo Securities:
"It's a reversal of fortunes. For most of the last 85 years Goldman has been in the stronger position. Today, you're left with Goldman seeking more consumer [business], more lending, more stable outcomes and a higher return on equity of the type that JPMorgan has."
But, to me, the important story is that Goldman Sachs is late to the restructuring game. To understand this, we need to look, right now, at what Morgan Stanley (NYSE:MS) has done in the last ten years.
Mr. Solomon may be looking at JPMorgan Chase as an example to emulate, one that focuses more on commercial banking areas, like consumer lending, but in terms of historical comparisons, I like to compare what Goldman Sachs has done over the past 10 years or so, with what Morgan Stanley has done over this same period of time.
Coming out of the Great Recession in 2009, Goldman Sachs topped the list of big bank performances and seemed to be in the best shape to more forward of anyone. The leadership of Goldman Sachs decided at that time to maintain the business model that put the company at the top. And, it arrogantly believed that it had the business model others would like to copy going forward.
Morgan Stanley, on the other hand, decided to change direction. In January 2010, James Gorman became the Chief Executive Officer of the bank, and in January 2012, Mr. Gorman became Chairman of the company. Mr. Gorman decided that Morgan Stanley had to revise its direction and move the company into areas that would produce not only a higher rate of return but also a steadier rate of return.
And, Mr. Gorman set out some pretty hefty goals to achieve in the process. Mr. Gorman and Morgan Stanley have not only hit their goals but have also produced record annual earnings.
To me, it speaks a lot about the culture at Goldman Sachs that they stuck to their past model to move into the economic recovery following the Great Recession and took seven or eight years to really talk about the need to change.
Now, Mr. Solomon has taken over, but has only been in charge for a year or so. In terms of restructuring a company, hardly any time has passed to observe whether or not he is really succeeding in his remake of the culture.
