Goldman turns to ‘make-or-break’ unit as its CEO put to test

BLOOMBERG

Goldman Sachs Group Inc’s leaders take the stage hoping to turn the page on a forgettable 2022, lay out new reasons for investors to rally around the stock and quell dissatisfaction within the firm’s ranks.
After a year in which profits slumped by half and a consumer-banking strategy unraveled, executives plan to offer a more forceful case for shareholders to appreciate its
$2.5 trillion asset and wealth management business. The top brass sees the unit, dubbed AWM, as critical to unlocking a higher valuation.
The Wall Street firm’s second-ever investor day comes at a critical juncture — weeks after Goldman’s leaders acknowledged a foray into consumer banking lost almost
$6 billion since inception, setting off disapproving howls in the ranks and denting CEO  David Solomon’s standing with the troops.
Though the grandiose vision for the venture has already been dismantled, investors and even insiders are waiting to hear whether all options are on the table for what’s left — and how the firm will move on.
“It’s not good to see Goldman flailing,” UBS Group AG banking analyst Brennan Hawken said in an interview. “There’s a perception that all the partners are not singing from the same hymn book. It leads investors to conclude that the CEO might be losing confidence of the partners. And that is worrying.”
The retreat from consumer banking has helped Goldman’s stock climb 7% over the past 12 months, bucking the decline of that amount in the broader S&P 500. But the company’s price-to-book ratio — comparing its market value to what the firm says its parts are worth — is hovering around 1.1. Morgan Stanley, which plowed deep into wealth management, is closer to 1.8.
One planned solution: reassure investors and analysts that a mini Blackstone Inc exists inside Goldman Sachs, and that it can smooth out lumpy earnings and print profits through good times and bad — by wagering other people’s money instead of its own.
AWM has ramped up fundraising from clients, but its use of the bank’s balance sheet for investments has contributed to earnings being less predictable and more volatile. Solomon has been vowing to address that since taking over but hasn’t been doing it fast enough, according to Hawken.
“This unit is the make-or-break path to getting a higher multiple,” the analyst said. “If there’s a path to a better multiple, that’s the only path.”
Back when Goldman Sachs was preparing its own public stock listing in 1999, executives wrote in a prospectus for investors that a pillar of the strategy would be increasing stability of earnings — with asset management playing a key role.