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Sub-sector: Brokers
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Fundamental View
AS OF 28 Mar 2023Goldman Sachs has had mixed results in recent years, showing its strengths with periods of stellar trading results particularly during bouts of macro volatility, while investment banking results have weakened along with market conditions but market share remains strong. The funding profile has improved with increased deposit funding.
Goldman remains well behind “Big 6” peers in diversifying its revenue base beyond its historical strong points. Wealth and Asset Management are now the most likely areas of growth in the coming years.
Goldman Sachs’ (A2/BBB+/A) HoldCo long-term debt ratings have stable outlooks.
Business Description
AS OF 28 Mar 2023- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.4 tn in assets as of 4Q22 and a market capitalization of $123.2 bn as of March 8, 2023.
- 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 & Catalysts
AS OF 28 Mar 2023From a fundamental standpoint, the past several years since the 2020 Investor Day have been a mixed bag (to say the least). There is no way to sugarcoat that Goldman’s poorly-executed foray into consumer lending has thus far been a costly blunder, diverting capital and management attention away from its core businesses and providing a meaningful drag on profitability over what should have been a stellar few years given market conditions. Management has committed to either returning the consumer lending businesses to profitability or selling them.
Goldman could participate in further M&A to achieve its long-term strategic goals, as it has in recent years with mixed results.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil, but for the most part, has been positively impacted by bouts of volatility.
Key Metrics
AS OF 28 Mar 2023| $ mn | 4Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| ROAE (annual) | 9.7% | 21.3% | 10.3% | 9.4% | 12.3% |
| ROAA (annual) | 0.7% | 1.5% | 0.8% | 0.9% | 1.1% |
| PPNR / Avg. Assets | 1.08% | 7.38% | 1.34% | 1.20% | 1.40% |
| Efficiency Ratio | 65% | 220% | 66% | 68% | 64% |
| Net charge-offs (LTM) / Loans | 0.30% | 0.19% | 0.70% | 0.46% | 0.30% |
| Common Dividend Payout | 28.4% | 40.5% | 19.0% | 18.2% | 11.7% |
| CET1 Ratio | 15.1% | 14.1% | 14.1% | 13.3% | 13.1% |
| Supplementary Leverage Ratio (SLR) | 5.8% | 5.6% | 6.9% | 6.2% | 6.2% |
| Liquidity Coverage Ratio (LCR) | 125% | 122% | 128% | 127% | 127% |
CreditSights View
AS OF 19 Apr 2023We 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. GS is scaling back underperforming consumer banking initiatives but remains focused on building the size and repeatability of the overall revenue pool.
Recommendation Reviewed: April 19, 2023
Recommendation Changed: January 12, 2022
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