The most interesting nugget in Goldman Sachs’ investor presentations appears (surprise, surprise) in the footnotes. Its benchmarking slides, in which it invariably shows superior returns and profits, reference a “peer” average comprised of luminaries Bank of America, Citigroup, JPMorgan and Morgan Stanley (although there is no mention of recent standout Wells Fargo).
On Tuesday, Goldman’s investor presentation had an air of triumph. As interesting as who did appear on Goldman’s peer list is who did not. Bear Stearns, Lehman Brothers and Merrill Lynch all tried to emulate Goldman’s trading prowess of the early 2000s only to fail to replicate its even more legendary risk management. Morgan Stanley, Goldman most relevant competitor, has spent the post-crisis years retrenching.
So with Goldman measuring itself against maladroit universal banks, it looks heroic. It points to earnings volatility nearly two-thirds less than its selected peers. Return on equity in the past three years has been about 11 per cent as it has been able to buy back $16bn of shares since 2012.
But Goldman’s perch is not just a function of its wayward competitors. While the company, for regulatory or economic reasons, has exited trading businesses in recent years, its longstanding dominance in work for clients — equity underwriting, M&A advice, asset management and the like — now drives the firm.
Goldman opens its investor presentation with a section called “Safety & Soundness”, something that would have been inconceivable in 2007. In it, the bank highlights that total common equity has nearly doubled since 2007 and points to a leverage ratio that has more than halved to 10 times. Figures such as those would terrify bank investors a decade ago. That Goldman, of all firms, is touting those upfront now tells you all need to know about present-day bank investing.
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