Goldman Sachs seems to be learning the value of under-promising and over-delivering.
Presenting a strategic update Thursday, CEO David Solomon announced tweaks to some of the bank’s goals — namely, that it is aiming for a return on tangible common equity (ROTE) between 15% and 17% over the next three years.
ROTE has an outsized influence in the C-suite. It’s typically the metric (above all other metrics) compensation committees look at when determining the variable elements of executives’ pay.
But 2021 made a 17% benchmark look easy. Goldman reported a 24.3% return on tangible common equity last year. Though, to call 2021 a typical year would be misleading. The bank took in more than $59.3 billion in net revenue in 2021 — surpassing its previous record yearly total by the end of September.
Solomon was frank in admitting Thursday the year was an outlier.
“We don’t believe last year’s ROE is sustainable in any way,” Solomon said, according to The Wall Street Journal.
The last time Goldman stated an ROTE goal — at a January 2020 investor day — it was aiming for 14% by 2023 and in the “mid-teens or higher” by 2025, but had last posted an ROTE of 10.6%.
Goldman’s chief competitors are gambling higher. Morgan Stanley last month told investors it was eyeing a 20% ROTE over the “longer term,” according to the Financial Times, while JPMorgan Chase is aiming for 17% in the “medium term.” (The bank warned investors last month that it would likely miss that benchmark this year.)
Goldman’s strategy of setting expectations relatively low and achieving high runs counter to the run-up to the 2020 investor day. Goldman announced that event nearly three months ahead of time — giving investors more than ample opportunity to speculate on what sea change was about to come. For all its hype, at least one analyst came away from the 2020 event saying it lacked a “wow factor.”
Goldman in 2020 laid out its goals in a 263-slide collection. By comparison, Thursday’s presentation came in at a sparse 27 pages.
The biggest development between January 2020 and now, of course, is the COVID-19 pandemic — which, for some workers, spawned a mindset of “Could this meeting have been an email?” Or, in the case of investor days, “Could this have been covered in the earnings call?”
This is not to downplay Goldman’s success. The bank in 2020 said it wanted to more than double deposit balances at its consumer bank, Marcus — from $60 billion to $125 billion by 2025. It surpassed $100 billion by September 2021. With that seemingly well in hand, Goldman now wants to push that figure to $150 billion by 2024.
It set out in 2020 to nearly triple — to $20 billion, from $7 billion — its consumer loan and card balances by 2025. Now it wants $30 billion by 2024.
The bank also aimed Thursday to more than double revenue at Marcus by 2024 — to $4 billion, from $1.5 billion last year.
In transaction banking, Goldman wants to nearly double its deposits — to $100 billion in 2024, from $54 billion at the end of 2021 — and more than triple its revenues (to $750 million by 2024, from $226 million).
The bank also wants to take in more than $10 billion in fees from its asset-management business in 2024. More than 20% of that should be from alternatives such as private equity and real estate, Goldman said.
"Two years ago now, there was a lot of skepticism around the targets we laid out and what we thought we could accomplish," Solomon said Thursday, according to CNBC. "When you look at our progress, obviously, we way exceeded the returns."
Anticipation ahead of the 2020 investor day gave it an air of overhaul. Thursday’s event, by comparison, may have felt like a progress report. But that may be a nascent strong suit for Goldman.
Sure, David Solomon can do splashy. The bank, after all, announced a 10-year, $750 billion upgrade on its climate policy before that was the “in” thing to do. Then, when Wall Street banks, one by one, pledged last year to achieve net-zero greenhouse-gas emissions by 2050, Solomon dropped that — oh, by the way — Goldman was more than 20% of the way to its $750 billion goal nine months ahead of schedule.
Goldman may yet find understatement suits it.