Investopedia/Matthew Johnston: Goldman May Be Poised to Outperform After Blankfein

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Goldman May Be Poised to Outperform After Blankfein
By Matthew Johnston  March 13, 2018 — 6:00 AM EDT
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It’s been a mediocre few years, if not a dozen, for the supposed number one bank in the U.S., Goldman Sachs Group Inc. (GS), under the leadership of CEO Lloyd Blankfein. Despite outperforming many of its competitors, the bank’s approximately 80% return over the 12 years that Blankfein has been in charge has lagged the S&P 500’s 120% return and fallen short of competitor JPMorgan Chase & Co.’s (JPM) 190% return over the same period. But with expectations that the bank’s captain will be stepping down possibly this year, some analysts see a brighter future for the prestigious, yet beleaguered, investment bank, according to CNBC.
Handing Over the Reigns

Last Friday, the Wall Street Journal reported that Blankfein would be stepping down “as soon as year’s end.” The bank’s shares initially took a dive on the news, but recovered and were up 1.4% after the report to a new record high for the bank. Goldman Sachs refused to comment on the validity of the report, but analysts have been expecting since at least 2015, when Blankfein was diagnosed with a treatable form of lymphoma, that his days were numbered.

Those expectations were reinforced on Monday after the bank announced that current co-president and chief financial officer (CFO) Harvey Schwartz would be retiring in April with David Solomon to assume his role. That makes Solomon the most likely successor to Blankfein when the day comes to hand over the reigns. Goldman shares jumped on the news, closing nearly 1% higher at the end of trading on Monday. (To read more, see: Goldman CEO Lloyd Blankfein Prepares To Step Down By Year End.)
Meager Past, Bright Future

Respected bank analyst Dick Bove called the news that Blankfein was on the way out “wonderful,” while at the same time bemoaning the fact that it wasn’t happening sooner. Highlighting the bank’s poor earnings and revenue over the past decade, Bove expressed his wonderment over how Blankfein could be “considered one of the best managers of American industry.” For being the supposed top bank in the U.S., Goldman has failed to keep up with the changing economic and technological environment.

While Bove’s optimism centers on Blankfein’s departure, other analysts less critical of the current CEO see the successor continuing the bank’s rather boring “long-term greedy” strategy of focusing on long-run value maximization. There are expectations that Goldman’s focus will be on refining its investment banking business and that it should expand through acquiring small competitors. (To read more, see: Goldman to Spend $2.5B to Buy Stakes in PE Firms.)

Cutting Blankfein some slack, no sooner did he begin his tenure than the U.S. banking system was mired in crisis, and the recession and increased financial regulation that followed did not make it easy for banks. But of course, considering that all U.S. banks had to deal with those problems, the title for being the nation’s number one bank should probably actually go to the bank with the number one performance.
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