In an unusual move, Goldman Sachs chief executive David Solomon is likely to appear on the firm’s earnings call on Wednesday, underscoring a new effort by the once prestigious investment bank to rebuild its image with investors amid persistent questions over its business model and a scandal that has rocked the firm, FOX Business Network has learned.
The earnings call will be Solomon’s second since taking over as CEO for Lloyd Blankfein on October 1. Blankfein served 12 years at the helm of Goldman, managing the firm through some of the most profitable periods, through the 2008 financial crisis, and most recently as it struggled to maintain its reputation as the world’s leading investment bank catering to the biggest companies and super-rich investors.
Stymied by new post-financial crisis regulations and other issues, Goldman’s once gold-plated reputation has come under question amid declining earnings and an under-performing stock price during Blankfein’s last several years as CEO. According to the Wall Street Journal, analysts have cut their expectations for Goldman’s fourth quarter earnings per share more than at any of the other banks, and the price of Goldman’s stock has basically flat-lined over the last five years, despite a 45 percent gain in the Dow Jones Industrial Average during that same period of time.
Shares of Goldman have declined more than 30 percent over the past year.
Compounding the poor financial performance, Goldman is in the midst of a burgeoning scandal over its involvement with the Malaysian sovereign wealth fund known as 1MDB; Goldman underwrote bonds issued by the fund with fees that substantially exceeded what most Wall Street firms charge for such work. The U.S. Department of Justice and the SEC are investigating whether Goldman properly informed investors about the risks associated with the fund; Goldman has been accused of embezzling and laundering billions of dollars.
Some Goldman executives estimate that the scandal could eventually cost Goldman $5 billion to $10 billion in terms of regulatory and civil settlements. Goldman maintains it has done nothing wrong.
Amid these troubles, many analysts say Goldman is facing one of the most difficult periods in its storied 150 year history. Goldman CEOs rarely if ever appear on earnings calls, but the firm’s mounting problems has prompted Solomon to alert his senior executives that he is planning to appear and speak on the Wednesday conference call where the firm will discuss its fourth quarter earnings and likely face analyst questions over the firm’s liability in the 1MBD matter, people with knowledge of the matter say.
Solomon may also answer analyst questions, these people say. These people say Solomon could eventually reverse course, but as of now, he will likely appear on the call that is usually handled by the firm’s chief financial officer, a role Stephen Scherr has held since November.
A spokesman for Goldman declined to comment.
Richard Bove, a veteran securities analyst for Rafferty Capital Markets, applauded the move.
“Blankfein was unique among CEOs in that he refused to go to analyst conference calls to be questioned,” Bove said. “David Solomon’s willingness to get on the call is very encouraging because it represents a new attempt on the part of the company to reach out to investors.”
Bove added that during Solomon’s short time as CEO he has begun to fix some of the problems that Blankfein left him, including excessive spending.
“The company is finally being correctly positioned after years of excessive spending,” Bove said. “JPMorgan, Morgan Stanley have been doing it for years. Goldman is finally getting the fact that there is much less money in investment banking.”
Goldman is expected to report earnings of $4.43 per share according to the financial data company, FactSet, which is down from last year’s fourth quarter earnings when the company reported earnings of $5.68 per share.
To be sure, shares of all the financial stocks have been falling in recent months reflecting loss of trading revenues from a flattening yield curve, a decline in oil prices and higher interest rates that have depressed trading profits.
But Goldman’s problems appear more acute because it is more reliant on trading than other big banks, and investment banking fees have declined in recent years all across Wall Street. Meanwhile unlike banks like JPMorgan Chase, Goldman has fewer lines of business that can make up for a decline in trading.