NEW YORK (Reuters) – Earlier than Goldman Sachs Group Inc (GS.N) working chief David Solomon takes the subsequent step in his profession, the 56-year-old banker must show technique he has championed to extend annual income by $5 billion can truly work.
Solomon, who’s now successfully the chief government officer-in-waiting after his rival within the succession race determined to depart the Wall Road financial institution, is making an attempt to get dealmakers and merchants to work collectively to provide extra income. He’s additionally pushing for development in companies like asset administration and client lending, the place Goldman doesn’t have an extended observe document of success.
Because the technique was unveiled in September, Wall Road has been rife with skepticism that Goldman, whose annual revenues have remained caught beneath $40 billion since 2010, could make it occur. Analysts have repeatedly questioned administration’s underlying assumptions for the $5 billion goal in analysis studies and on public convention calls.
Privately, many bankers and merchants scoff at the concept that Solomon can get competing sides of the home to cooperate.
“I’ve been with Goldman for 20 years and have been listening to this concept for so long as I’ve been right here,” one dealmaker instructed Reuters in regards to the cross-selling plan. “I by no means in my 23 years right here been requested by a consumer to be launched to our inventory brokers,” stated an funding banker at a rival agency.
Like a number of others, these bankers spoke about Solomon and the income technique he helped engineer on the situation of anonymity as a result of they weren’t approved to talk to the press.
However associates who spoke to Reuters about Solomon described a direct, decisive chief who has confirmed he can persuade purchasers to do extra enterprise with Goldman Sachs, and who may get a staff motivated behind an untested technique.
For example, as co-head of Goldman’s funding financial institution from 2006-2016, Solomon is credited with bolstering the debt financing enterprise.
NOT HOPING TO GO BACK A DECADE
Goldman had traditionally averted placing its steadiness sheet to work to help offers as a result of the financial institution normally represented acquisition targets relatively than acquirers. However Solomon, who spent the early a part of his profession in debt markets, noticed large alternatives for Goldman to be a lender at a time when low rates of interest have been prompting firms to borrow at an unprecedented fee.
His choice helped the broader funding banking unit’s income soar 70 p.c in the course of the time Solomon was certainly one of its leaders. That helped offset a pointy decline in buying and selling income that has plagued Goldman since 2009.
A $5 billion improve would characterize development of round 15 p.c over Goldman’s 2017 internet revenues of greater than $32 billion. In 2016 revenues of $30.6 billion have been down greater than $three billion from 2015. The agency reported $45.17 billion in revenues in 2009, second solely to its document revenues of $45.99 billion in 2007.
“We don’t sit round hoping that 2007 or 2009 will occur once more and that the world will return to the place we have been a decade in the past,” stated Stephanie Cohen, chief technique officer. “David is a pacesetter who embraces the long run with out forgetting the previous. And he’s obtained a powerful heritage inside certainly one of our strongest companies.”
Extra just lately, Solomon has been encouraging funding bankers to transcend the CEOs they usually pursue for M&A transactions, and in addition to develop relationships with company treasurers and executives who oversee operations like hedging. The thought is to persuade those that select which banks to borrow from and commerce with to make use of Goldman Sachs as a substitute of powerhouses like JPMorgan Chase & Co (JPM.N) or Citigroup Inc (C.N).
Solomon shouldn’t be shy about getting personally concerned, associates stated, main consumer conferences and giving suggestions. He has additionally been an enormous proponent of cross-selling for a few years. When he ran funding banking, he made a selected effort to attach folks throughout the funding banking and funding administration divisions to share experience and guarantee higher consumer protection.
“David has obtained everybody in a room speaking about collaboration much more,” one other government stated.
Solomon clearly has some stage of help internally – together with from his boss, CEO Lloyd Blankfein, who instructed Goldman’s board of administrators final month that Solomon was his prime decide as a future successor, an individual accustomed to the matter stated. That call prompted Harvey Schwartz, the opposite co-chief working officer, to announce this week that he’ll depart the financial institution in April.
However Solomon nonetheless has work to do in profitable over Wall Road, the place buyers and analysts stay skeptical of administration’s income plan.
Instinet analyst Steve Chubak took an in depth take a look at assumptions behind Goldman’s plan to provide $5 billion extra in annual income by 2020 in a November report titled “All That Is Goldman Does Not Glitter.” He concluded that administration’s view on the revenue potential of client lending was too rosy and that, total, the brand new enterprise won’t make up for high-margin buying and selling income that has evaporated.
Others expressed related doubts in interviews this week.
“Lloyd Blankfein is a grasp of markets…and people are powerful footwear to fill,” stated Wells Fargo analyst Mike Mayo.
Reporting by Catherine Ngai and Gregory Roumeliotis in New York; Modifying by Lauren Tara LaCapra and Leslie Adler