Goldman Sachs CEO’s growth strategy gets traction with board-sources

By Saeed Azhar and Lananh Nguyen

NEW YORK (Reuters) -Goldman Sachs’ board supports CEO David Solomon’s focus on its core Wall Street businesses and asset management, according to two sources close to Solomon.

The executive is tasked with reviving the bank’s stock, even as scepticism from some investors and employees grows.

The 12-member board of directors is intensely focused on Solomon’s refreshed strategy, one of the two sources told Reuters, after the firm’s foray into the consumer banking business saddled Goldman with losses and left if lagging rival Morgan Stanley (NYSE:).

The expected arrival of Tom Montag, who was approached by Solomon, also signals to insiders that the chief executive and his turnaround plans have internal support at the top, separate sources said.

The assessment, which follows Goldman’s recent board meeting in India, has not been previously reported. It shows that the circle around Solomon believe in his ability to revive the bank’s fortunes.

The bank’s shares have fallen about 2% in 2023, lagging competitors Morgan Stanley and JPMorgan Chase (NYSE:) where shares have risen 8% and 15%, respectively. Even so, Goldman’s stock is still outperforming the S&P banks index, which is down more than 3% this year.

Goldman is trading at a forward price-to-book multiple of 0.99 times compared to JPMorgan, which trades at 1.43 times and Morgan Stanley’s 1.53 times, according to Refinitiv’s Eikon data.

The bank declined to comment on its share price performance.

LOST FAITH?

David Wagner, a portfolio manager at Aptus Capital Advisors, exited his small position in Goldman Sachs (NYSE:) months ago because he was unimpressed with managers’ handling of the consumer business.

“The inability to execute on this front has led us to believe that there is a lot of internal strife at the company, which could create employee retention problems in the future as faith in David Solomon could be lost,” Wagner said.

Analysts have questioned the banks’ reorganization, which the bank argued strengthened its core business.

The firm has been belt-tightening in an ongoing push to cut $1 billion in costs, targeting smaller and smaller line items and contemplating more job cuts, sources previously said.

More bad news is expected on Wednesday when the bank is likely to report an almost 59% drop in earnings per share in its second-quarter results along with a writedown on fintech business GreenSky. Marcus, the consumer business, lost $3 billion in three years, and is being wound down.

BOARD BOOST

Solomon approached former Bank of America (NYSE:) Chief Operating Officer Tom Montag after his retirement to discuss a Goldman board seat, according to two sources with knowledge of the situation. Montag was recommended by the board’s nominating committee to join as an independent director, according to a regulatory filing last month.

Montag previously worked at Goldman for 22 years and served as the co-head of its global securities business. Known as an intense and hands-on boss, he is expected to fortify Solomon’s position, according to five senior sources who worked with the executives.

The board’s secretary did not respond to direct requests for comment. Several board members did not respond to requests for comment, while others could not be reached for comment.

A Goldman Sachs spokeswoman said in a statement: “David and the leadership team are focused on executing on the strategic goals we laid out at investor day to grow and strengthen our existing businesses, diversify our products and services and operate more efficiently.”

Solomon did not respond to a Reuters request for comment.

The Wall Street giant laid off hundreds of staff in the second quarter, adding to a round of cuts in January of about 3,200 employees, the biggest reduction since the 2008 financial crisis.

In response to question about departures of senior executives including partners, the spokeswoman added that Goldman partners are staying longer, with their average tenure rising to 8.3 years in 2022 from 6.2 years in 2010.

STILL NO. 1

Solomon took the top job in 2018, leaning into Goldman’s consumer business to broaden earnings beyond volatile revenue from trading and dealmaking. The retail operations struggled to gain traction against well-established consumer banks, prompting the bank to set aside billions to cover potential loan losses.

Even after its ill-fated foray in consumer banking, the investment bank still ranked as the top adviser for global mergers and acquisitions in the first half of this year, according to Dealogic.

Goldman’s enduring influence was on show at a recent board meeting convened in India last month, which included a meeting with Prime Minister Narendra Modi.

Board member and billionaire steel magnate Lakshmi Mittal hosted a reception for Goldman clients and government officials at his luxurious residence in New Delhi, according to a source who attended the event. Mittal’s company ArcelorMittal (NYSE:) did not respond to a request for comment about the meeting.

“Just got back from an incredible trip to India where our leadership team and I met with our board of directors,” Solomon wrote in a LinkedIn post with photos of the group.