Goldman Sachs’ Investor Day More About Refocusing Than Grand Plans

Narrow-moat Goldman Sachs GS recently had an investor day where it reiterated financial targets, provided a progress report on initiatives since its previous investor day three years ago, and laid out adjusted strategic priorities. Goldman Sachs’ main financial targets for the medium term (3-5 years) remain a 14% to 16% return on equity, a 15% to 17% return on tangible equity, or ROTE, and an expense ratio of around 60%. Our $404 fair value estimate for the firm has a medium-term ROTE slightly below management’s target at 13.5%.

Goldman Sachs met most of its goals for its traditional businesses, but some newer initiatives still require more work. Over the previous several years, the company expanded and deepened relationships in its investment banking and trading business that led to higher market share, raised more than $150 billion of capital for its alternative asset management business, and added over $100 billion of bank deposits. However, its overall consumer banking push hasn’t met expectations with the platforms business having over $3 billion of losses over the previous several years, including credit card partnerships and consumer loans that were launched before a potential recession in the United States.

Goldman Sachs emphasized three key priorities in its investor day that were more a refocusing of current initiatives than an announcement of new initiatives. In its investment banking and trading business, it wants to maximize client wallet share and grow its financing business. In asset and wealth management, it wants to simply grow its management fees. In its platforms business, it wants to scale and achieve profitability. The third priority is a bit more interesting than the first two, as management also mentioned it’s considering “strategic alternatives” for its consumer platforms, which often means a restructuring or sale of the business.