Goldman Sachs’ New CEO Faces Significant Challenges Ahead

Goldman Sachs’ New CEO Faces Significant Challenges Ahead


New York
UJ Business

A new chapter begins at Goldman Sachs.

David Solomon, a part-time DJ and former president who co-led its investment banking division, officially took over as CEO from Lloyd Blankfein on Monday.

Blankfein, who has been at the helm since 2006 and will remain as chairman until the year’s end, is already contemplating his future endeavors, which may involve more freewheeling tweeting. Towards the end of his tenure, he began addressing topics like climate change and immigration.

“I might express my personal views without considering whether they’re in line with the interests of Goldman Sachs,” Blankfein mentioned during a recent social media chat with Solomon.

Solomon has a full plate ahead.

The bank’s shares have plummeted more than 11% this year. It has lagged behind its peers, hindered by a trading division that isn’t generating profits like it once did. Attracting and retaining top talent is crucial, alongside the expansion of new business ventures, such as Marcus, Goldman’s emerging retail banking initiative.

Here’s what Solomon needs to prioritize.

Solomon’s immediate focus is improving Goldman’s trading desk, which earns client fees for transactions in stocks, bonds, commodities, and currencies.

“The trading division has really been their weak spot in recent years,” said King Lip, chief strategist at Baker Avenue Asset Management in San Francisco.

This unit accounted for more than half of the firm’s revenue in 2012 but dropped to just over a third last year, as a stable market and low interest rates drew investors towards lower-fee index and passive funds.

Last quarter, Goldman’s trading division showed some resilience, but not in the stock market. Bond, currency, and commodities trading revenues jumped 45% compared to last year, while equity revenues remained flat.

Solomon is open to making necessary adjustments. Recently, he appointed Marty Chavez, the outgoing CFO, as a co-lead of the struggling division.

During a conference in May hosted by Sanford C. Bernstein, Solomon stated that Goldman would not simply “wait for conditions to improve” and emphasized the firm’s commitment to investing in trading technology.

Diversity and Talent

Solomon is also making his mark with other leadership changes.

Stephen Scherr, previously in charge of the consumer bank, is stepping into the CFO position. John Waldron, a long-time associate of Solomon, will assume the roles of president and chief operating officer.

“The key question will be: How well does this new team collaborate?” posed Stephen Biggar, an analyst at Argus Research.

Another hurdle for Solomon will be luring and retaining talent at the firm.

In recent times, many young professionals have preferred Silicon Valley over Wall Street, with tech firms attracting graduates with competitive salaries and relaxed workplace cultures.

Goldman has adapted, with positive results. Approximately two-thirds of its workforce consists of Millennials, and over 25% are engineers.

However, the firm must intensify its diversity initiatives, which began under Blankfein’s leadership, according to Lip.

Solomon has indicated that enhancing diversity is a priority. This summer, the management committee expanded its female representation. The bank also announced the formation of a group aimed at promoting the careers of diverse leaders within the company.

As trading becomes a less reliable revenue source and competition increases, Solomon’s Goldman is set to seek new avenues for growth.

“The model of a diversified financial services provider is currently quite effective, while Goldman remains relatively narrow,” Biggar remarked.

Some initiatives are already in progress. Last year, Goldman unveiled plans to increase revenue by $5 billion by 2020, part of which includes bolstering other areas of the firm.

The firm has also reaffirmed its commitment to its consumer division, Marcus. Having launched Marcus in the U.S. in 2016, Goldman began offering savings accounts in the UK last week and may eventually venture into life insurance, mortgages, auto loans, and wealth management services.

“We aim to construct a significant, distinct, and highly profitable digital consumer finance platform,” Solomon stated in May.

Solomon has been with the bank since 1999. He is expected to maintain a leadership style similar to Blankfein, though his personal interests certainly differentiate him.

“This isn’t an outsider brought in to radically change the company,” Biggar commented. “No one anticipates that. Yet there are opportunities for minor adjustments he could make.”