Goldman Names David Solomon As New CEO, Reports Higher Earnings -- 4th Update

07/17/18 02:49 PM EDT
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)

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