There’s been a lot of hand-wringing about Goldman Sachs on Wall Street lately. With an equity market value of $88 billion, it finds itself the smallest of its peer group. And that’s not where it wants to be, nor where it has been historically. In fact, it’s been quite the opposite. But facts—remember them?—are stubborn things, and the fact is that Goldman lags behind its chief competitors. JPMorgan Chase, the new king of Wall Street, has a market value of around $430 billion; Bank of America is valued around $300 billion; Wells Fargo is valued around $200 billion and Citigroup is valued around $170 billion. Morgan Stanley, Goldman’s longtime rival, is now worth around $90 billion, a fact that surely gets the competitive juices flowing at 200 West Street.
Of course, market values have at least some correlation to earnings. And this, too, is where Goldman has been lagging of late. While Jamie Dimon’s JPMorganChase has been racking up net income at an astounding clip of around $9 billion per quarter and some $36 billion for 2019—thanks in large part to its roaring consumer business and free money, courtesy of the Federal Reserve—Goldman’s fourth quarter net income was a mere $1.9 billion, although that profit was nicked by more than a $1 billion litigation charge related to Goldman’s ongoing effort to resolve the 1MBD scandal that has cast a bit of a pall over the firm for the last few years. The fact is that Goldman had a criminal—former partner Tim Leissner—in the midst of its village of 37,000 people. Like all litigation, it will get resolved one way or another, most likely with an unprecedented and large settlement. And that will be that.
But here’s the thing: As much as several Democratic presidential candidates might wish it to be otherwise, you can never count out Goldman Sachs. As the author of a book about the history of the firm, I know firsthand that Goldman has been in and out of trouble many times during its 150-year existence—including nearly going kaput at least four times—and it has an uncanny knack for finding the right man (so far, yes, only men have been Goldman’s senior partners or CEOs) to lead the firm at the right time.
Time will tell, of course, whether David Solomon, who has been Goldman’s CEO for 15 months, will prove to be that person. My bet is that Solomon will be, and not only because he still seems to have Goldman’s investors on his side. Despite the bad news that has been flowing out of Goldman lately, at $250 per share, its stock is trading near the all-time high of around $270 per share reached two years ago. On January 29, Solomon will make his case to investors formally, conducting the firm’s first-ever presentation, led by its CEO, as to why Goldman isn’t going away and might be on the cusp of regaining a slice of its former greatness.
I visited with a Goldman insider a few weeks back at 200 West Street, and we talked about what the firm has been through lately, missed opportunities, and where Solomon plans to take Goldman. Not surprisingly, it’s a combination of wanting to keep doing what Goldman does best—for instance, staying the best investment bank on the planet—and taking advantage of new opportunities on the margins—such as continuing Goldman’s push into digital banking—that Solomon believes will prove to be very profitable. What the Goldman insider seems reluctant to do—or at least to say to a working journalist—is suggest that Goldman might be buying a big bank anytime soon. First, of course, the Federal Reserve would have to approve any such merger, and it has been mostly unwilling to permit such material acquisitions among the banks it supervises since the financial crisis. Then there’s the matter of culture. Unlike JPMorgan Chase, or Bank of America, or Citigroup, which have all been built through a series of transformational mergers over many years, Goldman has remained insular. The few mergers it has attempted have mostly failed, although one in particular—that of J. Aron, in 1981—worked out spectacularly well. In other words, don’t look for Solomon to buy a big bank, such as PNC, U.S. Bancorp, or Bank of New York Mellon, anytime soon.
