Goldman Sachs CEO David Solomon erred by waiting until January to launch the bank’s 3,200-employee cull, he told a private meeting with Goldman’s 400 or so partners last week, according to the Financial Times. The cuts would have been much less drastic had he started earlier, Solomon added.
“As the environment was growing more complicated in Q2 of last year, every bone in my body believed we should be much more aggressive in slowing hiring and reducing headcount,” Solomon said, according to a person familiar with the remarks.
The mea culpa, however, may not have assuaged all of the concerns occupying some partners, according to Business Insider. The amount of money Goldman has lost in its consumer-banking effort — the bank attributed roughly $4 billion in losses last month to its Platform Solutions unit since 2020 — appears to be a common gripe.
Another is that morale has dipped as the bonus pool for partners this year fell by about 50%. Meanwhile, Solomon’s compensation saw just a 28.6% drop, which may have bred resentment in some.
Some employees in the global markets business, which drove 54% of the bank’s net revenue last year, saw compensation cuts of 60% or more, one of Business Insider’s sources said.
Then, there is an image issue for Solomon. Some shareholders, employees, and Goldman alums reportedly are questioning why the board doesn’t mute Solomon’s nonbanking pursuits at a time when morale is faltering. Solomon has caught flak for DJing a concert in the Hamptons that broke COVID-era restrictions, and his use of the company’s private jet has also drawn fire.
Some partners have considered bringing their concerns directly to the bank’s board, though they’ve hesitated because the board may be seen as out of touch with Goldman’s day-to-day operations, four people with knowledge of the matter told Business Insider.
The rumor mill, too, has churned as to who might replace Solomon if discussions take such a turn. Some pointed to Richard Gnodde, CEO of the bank’s international operations, one source told Business Insider. Goldman’s chief operating officer, John Waldron, meanwhile, is seen by some as too close to Solomon’s strategic efforts.
Solomon, for his part, told the partners that leaks to the media about Goldman were damaging the bank, the Financial Times reported.
The intended target here may have been a cover story in The Economist last month that asserted Goldman “is not yet in serious trouble, but it is trapped by its own mythology.”
Goldman’s partner meeting last week was not unusual. The bank holds such gatherings at least once every two years, mirroring the naming of new partners. It’s typically a venue for partners to discuss company strategy and hold training courses for new partners. It also served as a chance for some to hone presentations they’re scheduled to make at Goldman’s Feb. 28 investor day.
“It would have been unusual not to address the process on headcount reduction this year” at the partner meeting, a bank spokesperson told the Financial Times.
“The hope is that through this meeting, we give the partners transparency and they feel empowered to go out and tell that story to the people they work with,” Ericka Leslie, Goldman’s chief administrative officer, told the outlet. “I think we accomplished that.”
Solomon may do well at investor day by highlighting the gains Goldman has made in market share — particularly, in investment banking and trading over the past three years, sources told the Financial Times.
Goldman has added 3.5% to its market share gains in investment banking fees, fixed income and equity trading revenue since 2019, according to company data seen by Business Insider.
Also in that time, Goldman has grown book share by 38.9%. That’s more than twice the increase archrival Morgan Stanley has seen. Undoubtedly, that is a comparison Goldman’s board is aware of.
Goldman’s stock price, though, hasn’t seen the same comparative boost. The bank’s price to book value sits at around 1.1, while Morgan Stanley’s is closer to 1.8, and its total shareholder return since 2019 is 58.3%, compared with 78.9% for Morgan Stanley, Business Insider reported.
However, Goldman’s stock price stayed relatively flat last year, while Morgan Stanley’s dropped 9%. That trend shifted, though, when Goldman reported its fourth-quarter earnings Jan. 17. On that day, Goldman’s share price fell 6.4%, which Morgan Stanley’s ticked up 5.9%.
Wells Fargo analyst Mike Mayo asserted that Solomon is “not in this to win a popularity contest.”
“At the end of the day, is book value growing better than peers? Is the stock price outperforming peers? Are they maximizing long-term value?” Mayo asked, according to Business Insider. “When you get through the noise it’s an unequivocal yes.”
Tony Fratto, a Goldman spokesperson, dismissed, to a degree, talk of concern over the bank’s direction.
“This leadership team set a clear strategic direction for Goldman Sachs and it’s working — delivering a 10.2% return on equity in 2022 and growing our book value per share 40% since our first investor day,” Fratto told Business Insider. “These criticisms aren’t serious, and they aren’t based in fact.”