By Liz Hoffman
Goldman Sachs Group Inc. said veteran investment banker David
Solomon would succeed Lloyd Blankfein as chief executive, setting
up a high-profile transition for a firm that is expanding well
beyond its Wall Street roots.
Mr. Solomon will take over Oct. 1 from Mr. Blankfein, who has
run Goldman since 2006. Mr. Blankfein will remain chairman of the
board until the end of the year, when Mr. Solomon will take that
title as well.
The move was announced alongside second-quarter earnings that
were much improved from a year ago, when trading losses weighed on
results. Goldman reported $2.6 billion in profits on $9.4 billion
in revenue, both well above what analysts had expected and capping
the firm's strongest first-half since 2009.
Earnings of $5.98 a share were 51% higher than a year ago and
better than the forecast $4.66.
The announcement puts an end to a waiting game that had
captivated Wall Street for months. The Wall Street Journal reported
in March that Mr. Blankfein was eying an exit later this year, and
Mr. Solomon was named sole president soon after, raising
expectations of a speedy handoff.
Mr. Solomon will inherit a firm that has worked its way back
from near-death during the crisis but faces deep challenges. Its
trading business, once a money spinner, has fallen behind that of
peers as calm markets and tough regulations imposed after the
financial crisis took their toll. The firm's belated push into
consumer banking, where it is building a broad-based offering of
savings accounts, credit cards and wealth-management tools, will
take years to make a meaningful contribution.
"David is the right person to lead Goldman Sachs," Mr. Blankfein
said in a statement, praising his successor's track record of
developing new businesses and working to improve Goldman's
culture.
Quarterly gains were broad-based across the business, with each
of Goldman's four main divisions reporting double-digit revenue
gains from a year ago. But trading results fell short of investor
hopes that had rallied in recent days as rivals reported their
results. Goldman shares fell 1% by midday.
Goldman's shares are the worst-performing among big U.S. banks
this year, down about 10%. Investors, who cheered bank stocks in
the wake of the 2016 presidential election, have turned less
enthusiastic, rattled by the potential for a protracted trade war
and a narrowing gap between short- and long-term interest
rates.
Goldman's investment bankers, Mr. Solomon's former realm, had
their third-best quarter on record, cracking $2 billion in revenue
for the first time in three years led by strong stock underwriting.
Corporate CEOs generally haven't been rattled by the geopolitical
turmoil or headlines out of Washington and are continuing to do
deals and take advantage of open markets to raise capital.
Chief Financial Officer Martin Chavez said the firm's backlog of
transactions had grown since March. That's a good indicator of
future fees, as bankers are typically paid only when deals are
completed.
"Yes, there's geopolitical and other discussions but ... we've
seen no impact," Mr. Chavez said. "It's clear to us and to our
corporate clients that the strategic benefits [of transactions]
outweigh the potential perceived challenges."
Still, Goldman's trading results failed to impress. Its
stock-trading business was flat year-over-year despite gains of 25%
at JPMorgan Chase & Co, and 19% at Citigroup Inc.
Its all-important fixed-income unit, which trades bonds,
commodities, currencies and interest-rate products, did a little
better, up 32% over a dismal second quarter of 2017. Revenues in
that business have fallen by two-thirds from their crisis-era peaks
amid new regulations and quiet markets.
Revenue from Goldman's investing and lending unit, a $128
billion collection of stakes in and loans to companies, jumped 23%
from a year ago. The firm sold several investments, including
financial-data provider Ipreo Holdings, and also got a boost when
streaming service Spotify Technologies Inc., in which Goldman held
a valuable early stake, went public.
Goldman said its consumer bank, dubbed Marcus, has made $4
billion in personal loans and has 1.5 million customers, including
the roughly 1 million it acquired when it bought personal-finance
app Clarity Money.
Mr. Solomon will be the third Goldman CEO since the company went
public nearly two decades ago. The first, Henry M. Paulson Jr.,
went on to serve as U.S. Treasury Secretary under President George
W. Bush.
Mr. Blankfein, a longtime trader and lawyer who rose through the
firm's commodities business, guided Goldman through the financial
crisis and the public scrutiny that followed it.
Reached Tuesday, Mr. Paulson said Mr. Blankfein deserved "a
special place" in Goldman annals for his stewardship during the
crisis. "His energy, intellect, charm and wit will serve him well
in his next act," he said. "And knowing Lloyd, there will be an
impactful next act."
Mr. Blankfein has given few clues about what he'll do after
leaving Goldman. Some New York politicos have urged him to run for
mayor, but he has said he isn't interested.
"When I've been asked about succession in the past, it's always
been hard for me to imagine leaving," Mr. Blankfein said in a memo
to Goldman employees Tuesday. "When times are tougher, you can't
leave. And, when times are better, you don't want to leave."
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
July 17, 2018 14:49 ET (18:49 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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