Inside Goldman Sachs' first investor day, where avocado toast and crab apples were served with tech talk, three-year plans, and a surprising trading mea culpa
- Goldman Sachs held its first-ever Investor Day this week, and the event was attended by hundreds of analysts and portfolio managers.
- Bank executives gave a series of presentations intended to provide more detail around its growth plans and nascent businesses, and hopefully convince investors that they stock is worth buying.
- The stock dropped 1% on the day, and several analysts in the room said they would have liked to see more ambitious targets or some other big announcement.
- Attendees were treated to locally sourced food and invited to check out a series of booths set up to demonstrate some of the firm's cutting edge technology platforms.
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When David Solomon stepped onto the stage at Goldman Sachs's 200 West Street headquarters on Wednesday wearing a dark suit and a silver tie, he looked out at a roomful of expectant analysts, investors, and journalists.
This was the 150-year-old firm's inaugural investor day, and hopes were high. The hype surrounding the event had been building for months, and the crowd in Goldman's ground-floor auditorium was looking for a big reveal.
What they got instead were financial targets that largely matched expectations - an efficiency ratio of 60% and a long-term return on tangible equity in the mid-teens - and a slickly produced event that provided more details about a strategy that features heavy on technology platforms and commercial banking add-ons.
If one were to sum up the day, it would be that Goldman proudly declared its ambitions to become a universal bank in the mold of JPMorgan or Citigroup.
"This does not seem to be a dramatic change in the direction and approach of the business, nor do we expect it will result in a significant revision of forecasts in the near-term," UBS analyst Brennan Hawken wrote in a morning note.
Barclays analyst Jason Goldberg took it one step further, highlighting a report he wrote four months earlier after a lunch with Solomon where he predicted a return on tangible equity "approaching 15%, an efficiency ratio nearing 60%, and a CET1 target of 13%."
It took four months, in other words, to confirm Goldberg's intel. The stock fell 1% on the day.
That's not say there wasn't information to be learned or fun to be had. A procession of mostly white men spent the morning walking the crowd through the bank's various business lines. Solomon, his chief lieutenant John Waldron and CFO Stephen Scherr kicked off the show in succession.
While Solomon and Waldron roamed the stage, occasionally glancing at notes on screens at their feet, Scherr spoke in measured tones from behind a translucent lectern. The CFO played his part.
They were followed by investment banking co-head Gregg Lemkau, who explained how the firm could squeeze even more from the world's top-ranked investment bank. Securities division co-heads Ashok Varadhan and Jim Esposito wore dark suits, with open-collared white shirts. They too stood behind translucent lecterns.
When asset management co-heads Tim O'Neill and Julian Salisbury followed, they both wore red ties, and kept their suit jackets buttoned as they spoke from the middle of the stage.
The audience began to sense a pattern. The tone of the room was serious, and many in the crowd could be seen on laptops scrolling through the presentations and writing down important points. Analysts later said they appreciated the additional disclosure, with one saying that he couldn't wait to get back to his office to input the new information into his models.
The irony of holding the event in a glass-and-steel building that Goldman opened after the financial crisis, and which bears no signs of the firm on the outside, couldn't be overstated. Guests were greeted in the lobby with a large blue sign above reception announcing the reason why we'd all come that day: Goldman Sachs Investor Day.
"We are taking real and significant steps to make Goldman Sachs more transparent and easier to understand," Solomon said in a press release that crossed shortly before the event began.
Booths set up in the lobby featured Goldman employees in light blue tops demonstrating the firm's new digital transaction banking dashboard and its Marquee trading platform on large flat screens. Many of the booths lacked walls.
The presentations took place in an auditorium behind the lobby, in a room where Lloyd Blankfein handed the CEO's mantle to Solomon amid tears. The crowd was now seeing what the younger man had planned for the upcoming years.
In some ways, the event pulled few punches and executives took pains to draw clear distinctions between the Blankfein era and this one.
Jim Esposito, one of three co-heads of what Goldman is now calling the global markets division, admitted to a couple strategic mistakes, admissions that were hard to eke from the prior management team.
In one case, Esposito admitted the bank's offering for quant clients had been lacking in recent years, and said the bank plans to double down in serving such clients. Its Project Atlas, which will involve spending $100 million and hiring hundreds of technologists, is intended to address the $1 billion revenue gap Goldman has to Morgan Stanley in addressing those clients.
"Speaking bluntly, we underestimated the opportunity with this client constituency over the years, full stop," Esposito said. "We're late."
Esposito also highlighted a mistake made in the fixed-income trading franchise, when Pablo Salame and other senior execs compelled traders to focus narrowly on evaluating each transaction on a per-trade return basis rather than how it would serve clients. In April 2017, Salame tried to change the bank's approach with his "Just Add Butter" campaign, but by then it was too late.
"The result of that was we ended up missing out on certain parts of the business," Esposito said. "By attempting to select only the highest-returning trades that were available to us, we didn't end up broadening and deepening our client franchise. Now with the benefit of hindsight, we simply pushed our return orientation a bit too far."
Esposito's apologies, while welcomed by some in the audience, don't mean that Goldman's markets business will be spared further pain. More than half of Solomon's $1.3 billion in promised cost cuts over the next three years, or $700 million, will be taken out of the global markets division.
The unit has already seen at least two dozen partners exit over the last 18 months, a fact that Esposito's co-head, Ashok Varadhan, addressed during his part of the presentation.
"I want to be emphatic: I've never felt better about the roster of trading leaders we have across our various product lines," Varadhan said. "We've had senior-level trading departures, but it's been healthy. It's unleashed the next-generation of experienced talent that's better equipped for the business today."
Later in the presentation, Chief Strategy Officer Stephanie Cohen and co-Chief Information Officer Marco Argenti spoke about the bank's approach to innovation. Argenti summed it up best when he said Goldman was "using technology to unlock the potential of the firm's intellectual property."
In a conversation later in the day, Cohen said an easy way to think about what they are trying to do with technology is finding ways to make it easy for clients to embed Goldman's brain - data and intelligence and insight - into their own systems. That could be the bank's risk management capabilities, loan underwriting skills, or financial products. The Apple Card, which is a Goldman-designed product delivered on Apple's devices, is one such example.
"That last capability is the consumer version of our platform strategy," Cohen said. "It allows us to take products and services that we build for our own clients and then give it to other clients so that they can embed financial products into their ecosystem. This strategy will drive top line growth, and it will create scale efficiencies."
The day was sprinkled throughout with comments about how, if Goldman executes, it will mean billions more in top-line growth.
This being Goldman Sachs, the event was well appointed. Breakfast included avocado toast, featuring turmeric sourdough bread and pomegranate seeds, and smoothies provided by Catskill Provisions, a local food purveyor and a graduate of Goldman's 10,000 Small Businesses program.
Lunch in the cafeteria later featured biscuits and butter from graduates of the program, as well as sliced organic chicken; artichoke, mint and Parmesan salad; and risotto croquettes. The dress code, of course, was "business casual." And the event, lacking single-use plastics or paper materials, was 100% sustainable.
When it came time for questions and answers, Solomon received some pushback.
Another said he would have liked to see more of the growth plans focused on expenses, which the company can control, than revenue items subject to market forces.
Later, as if to punctuate the difference between this leadership team and the last, Blankfein breezed through the lobby. Wearing jeans and carrying a brown shopping bag, the retired executive looked at ease. His face, covered in short stubble, showed few signs of stress visible in the others.
