Lloyd Blankfein has been the chief executive at Goldman Sachs (GS) for twelve years. He steered the investment banking giant through the financial crisis of 2008 and has been at the helm for a string of record earnings since then. It has been long expected that Blankfein would retire and last month Goldman formally announced that President David M. Solomon would soon replace him as CEO.
Since the depths of the crisis in December of 2008, shares in Goldman Sachs have risen over 300%, from as low as $50/share to $234/share today - and even after the impressive share appreciation, Goldman still trades at less than 10 times forward earnings, netting $25/share on $36 billion in revenues.
Goldman is a Zacks Rank #2 (Buy).
Blankfein will stay on as CEO until October, but Solomon has already begun to assemble the management team that will lead Goldman into the future. Today he will officially appoint former fixed-income chief Jim Esposito as Co-head of Trading, where he will join Ashok Varadhan as the leaders of the firm’s enormous trading division.
During his tenure, Blankfein significantly diversified Goldman’s range of business units, including a push into lucrative opportunities in consumer lending and cash management. The firm has lost share in Trading however, a division that is especially important to investment banks because of its potential to add outsized profits in any given period – especially during times of high market volatility when other divisions may struggle.
As you can see from the breakdown of revenues in Goldman’s Q2 10-Q report, they are now fairly evenly spread across the bank’s five active divisions, with net interest income adding an additional billion or so per quarter:
Trading revenues – at $8.6 billion in the first half of 2018 – are still well behind their historical highs, topping out in 2009 at $33B. A decade ago, trading used to comprise up to 70% of revenue at Goldman, while in the most recent quarter it was only 37%. Though the more diverse revenue streams arguably make Goldman a much stronger company overall, it also means they have lost share in trading to rivals like JP Morgan Chase (JPM) and Morgan Stanley (MS), as well as hedge funds with large market-making operations like Chicago-based Citadel.
The appointment of Esposito shows that in addition to continuing to expand Goldman’s investment banking division – Solomon’s particular area of expertise – and a push into consumer banking, the new CEO intends to bolster trading results as well. This is a well rounded plan to improve the already enormously profitable investment bank.
Though Blankfein was a true Titan of the industry in bad times and good and his will be big shoes to fill, Solomon’s early moves indicates that Goldman Sachs will stay in very good hands - and remains the premier large investment bank for investors to own.
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