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It’s been 25 years since Goldman Sachs’ groundbreaking initial public offering in 1999. Current chief executive David Solomon joined the U.S. bank that year, a fact Solomon himself was keen to remind analysts of on Monday when discussing second-quarter results.
Investment banking revenue rose sharply over the past three months, as expected, and is up 27 percent year-on-year so far for 2024. But some observers were at least mildly disappointed. Annualized return on equity was just 11 percent, as operating expenses, including salaries, remain high. In the heyday of 1999, that figure was 31 percent.
A fundamental difference between then and now is that Goldman It is subject to regulation by the Federal Reserve, which tightened capital requirements since 2008. For Goldman, middle age has meant a decline in her aspirations and capabilities.
In May 1999, Goldman’s first public disclosure after its IPO showed its total shareholders’ equity was just $8 billion against $245 billion in assets, giving it an implied leverage ratio of 31. Today it has $119 billion in shareholders’ equity and a leverage ratio of just 14 times.
As at the turn of the century, Goldman continues to dominate in investment banking and sales and trading, although the latter have been held back by regulatory and capital constraints. Goldman is now also the largest investor in investment banking. protesting the results from its recent Fed “stress test,” the results of which may require it to hold more capital and thus reduce the opportunity for buybacks and dividends.
Goldman is trying to position itself as a leader in corporate lending, private asset management and wealth management, the hottest areas on Wall Street. Its fundraising efforts have gone well and it has about $3 trillion of assets under “oversight.” But Solomon admitted that the asset management business’s return on equity was still only 10 percent, and described Goldman’s overall plight as a “journey” toward promised profitability.
On its first day of trading in May 1999, Goldman’s stock soared from its $53 trading price to, at one point, over $76, implying a price-to-book ratio of close to 5 times. Today, Goldman trades at just 1.5 times. Given the environment and how financial services has changed, the current valuation isn’t bad. But the strong sense of nostalgia that permeates Goldman this year suddenly begins to make sense.