Fundamental ViewAS OF 16 Aug 2022
Goldman experienced record capital markets results driven by elevated markets activity in 2020-2021. Still, the company remains focused on its medium and longer-term goals unveiled at the start of 2020 to improve efficiency, revenue mix, and funding. We see these initiatives as well as the recent improvement in core results as credit positives.
Goldman Sachs’ (A2/BBB+/A) HoldCo long-term debt was upgraded to A2 from A3 by Moody’s, citing lower loss given default modeling. Its S&P ratings have remained unchanged since 4Q15.
Business DescriptionAS OF 16 Aug 2022
- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.6 tn in assets as of 1Q22 and a market capitalization of $91.8 bn as of June 21, 2022.
- Goldman Sachs presents its activities through four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
- Goldman's historical strengths include equity and FICC sales & trading, investment banking, institutional investment management including alternatives, and high net worth wealth management. It is gradually expanding its business mix to include consumer lending, expand its wealth management client base, and add other stable fee income streams.
Risk & CatalystsAS OF 16 Aug 2022
Much of Goldman’s core business is tied to global macro economic trends & overall levels of capital markets activity; market conditions have been unusually positive since the pandemic began (including positive impacts from macro volatility in 2022), but could normalize over time. Goldman is seeking to expand its operations and client base outside of its traditional businesses, which carries execution risk.
Goldman could participate in further M&A to achieve its long-term strategic goals, such as its a deal for NN Group’s Europe-based asset management division, which shifts the balance of revenues within asset management away from equity investments.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil.
Key MetricsAS OF 28 Feb 2023
|$ mn||LTM 1Q22||FY21||FY20||FY19||FY18|
|PPNR / Avg. Assets||1.60%||7.38%||1.34%||1.20%||1.40%|
|Net charge-offs (LTM) / Loans||0.21%||0.19%||0.70%||0.46%||0.30%|
|Common Dividend Payout||13.6%||40.5%||19.0%||18.2%||11.7%|
|Supplementary Leverage Ratio (SLR)||5.6%||5.6%||6.9%||6.2%||6.2%|
|Liquidity Coverage Ratio (LCR)||126%||122%||128%||127%||127%|
CreditSights ViewAS OF 16 Aug 2022
We maintained our Market perform recommendation for Goldman Sachs heading into 2023. Given spread levels we still see better value in some money center peers such as Citi and JPMorgan. Spreads reflect fundamental improvements made at Goldman in recent years, particularly improvements in the funding profile, but we believe the relative tightening is overdone, and as is becoming clear, the strategy to de-risk and diversify the overall business is taking a step backwards with GS abandoning some of its consumer banking initiatives that did not reach targets.
Recommendation Reviewed: January 18, 2023
Recommendation Changed: January 12, 2022