Remember those revenue goals Harvey Schwartz laid out in his growth plan for Goldman Sachs this time last year? Those plans where he said Goldman was going for $5bn in extra revenues over the next three years (ie. by 2020)? The team of banking analysts at KBW in New York think they’re a pipe dream.
In a note issued this week, KBW’s analysts predicted that Goldman will earn $2.3bn of new revenues by 2020, less than half its target. The business that’s due to miss by the biggest margin is fixed income currencies and commodities (FICC) – where Goldman has had historic problems, and where the bank under-performed in the third quarter.
The chart below shows KBW’s predictions for Goldman’s revenues in 2020 versus the bank’s own predictions. In fixed income, KBW thinks Goldman only generate 25% of the additional $1bn in revenues it’s aiming for. In equities and the investment banking division they think it will generate 30%. In investment management 40% and investing and lending nearly 68%.
What’s wrong that Goldman should be expected to fail so miserably? Unfortunately, KBW’s analysts aren’t big on the details. However, they do say that as, “markets turn choppy and investors’ expectations about the future macro environment become less certain,” Goldman’s big aspirations might come unstuck.
What this means for Goldman isn’t clear. After all, KBW’s projections are only projections just as Goldman’s are. However, Goldman employees might want to hope their executives don’t pay too much attention to KBW’s thoughts ahead of the coming ‘front to back review’ of its businesses, due to take place sometime soon. Rival analysts at Buckingham Research already suggested the review could presage a shift in resources away from fixed income. If KBW’s projections are right, a fixed income squeeze is an inevitability.
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