New Lloyd, Same Goldman

Issue 07-16-17   |   Reviewer:   Delvin D. Hawley, Ph.D.
Disciplines:


Abstract

Lloyd Blankfein is in his twelth year as CEO of Goldman Sachs Group, Inc. He was in charge before and during the 2008 financial crisis and was a target of public scorn for the bank's role in that crisis. Since then he has put the bank on a path of strategic retooling. He recovered from lymphoma and decided to stay on as CEO rather than step down as had been expected by many.

His decision led to questions from investors and analysts about whether he can rejuvenate a business that has struggled to show revenue growth for the past five years and where trading market share has stayed flat as rivals gained ground. Blankfein has been slower than rivals to embrace possibilities for growth outside trading and investment banking. He oversaw a 55 percent gain in the stock price during his tenure, but the company’s stock has slumped 5 percent this year as Trump and Congress struggle to pass legislation.

In the last eighteen months, Blankfien has stitched together a patchwork of new initiatives including a consumer bank, a heightened focus on lending, and more resources for asset management. He has also retained the bank's strong commitment to trading, investment banking, and principal investing. Some current and former partners, as well as members of the investment community, worry that Blankfein hasn’t done enough to adapt to slower economic growth and tougher capital rules that have handcuffed his traders.

The CEO is betting that when economic growth picks up, Goldman Sachs will be rewarded by loyal clients thankful for its commitment. Key to this strategy is figuring out which changes are fleeting and which are permanent, but it’s largely a question that has yet to be answered. Analysts expect earnings per share to slip 7 percent in the second quarter. Combined with estimates for the rest of 2017, that would deliver a return on equity of less than 10 percent for the second year in a row.





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