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Goldman's Solomon sets out to prove bank's revenue engine can roar again

Reuters  |  NEW YORK 

By and Greg Roumeliotis

NEW YORK (Reuters) - Before Group Inc operating chief takes the next step in his career, the 56-year-old will have to prove that a strategy he has championed to increase annual revenue by $5 billion can actually work.

Solomon, who is now effectively the chief officer-in-waiting after his rival in the succession race decided to leave the bank, is trying to get dealmakers and traders to work together to produce more revenue. He is also pushing for growth in businesses like and consumer lending, where Goldman does not have a long track record of success.

Since the strategy was unveiled in September, has been rife with scepticism that Goldman, whose annual revenues have remained stuck below $40 billion since 2010, can make it happen. Analysts have repeatedly questioned management's underlying assumptions for the $5 billion target in research reports and on public conference calls.

Privately, many bankers and traders scoff at the idea that Solomon can get competing sides of the house to cooperate.

"I have been with Goldman for 20 years and have been hearing this idea for as long as I have been here," one dealmaker told about the cross-selling plan. "I never in my 23 years here been asked by a client to be introduced to our stock brokers," said an investment at a rival firm.

Like several others, those bankers spoke about Solomon and the revenue strategy he helped on the condition of anonymity because they were not authorized to speak to the press.

But associates who spoke to about Solomon described a direct, decisive leader who has proven he can convince clients to do more business with Goldman Sachs, and who can also get a team motivated behind an untested strategy.

For instance, as of Goldman's investment from 2006-2016, Solomon is credited with bolstering the debt financing business.

NOT HOPING TO GO BACK A DECADE

Goldman had historically avoided putting its balance sheet to work to support deals because the usually represented acquisition targets rather than acquirers. But Solomon, who spent the early part of his career in debt markets, saw big opportunities for Goldman to be a lender at a time when low interest rates were prompting companies to borrow at an unprecedented rate.

His decision helped the broader unit's revenue soar 70 percent during the time Solomon was one of its leaders. That helped offset a sharp decline in trading revenue that has plagued Goldman since 2009.

A $5 billion increase would represent growth of around 15 percent over Goldman's 2017 net revenues of more than $32 billion. In 2016 revenues of $30.6 billion were down more than $3 billion from 2015. The firm reported $45.17 billion in revenues in 2009, second only to its record revenues of $45.99 billion in 2007.

"We don't sit around hoping that 2007 or 2009 will happen again and that the world will go back to where we were a decade ago," said Stephanie Cohen, "David is a leader who embraces the future without forgetting the past. And he's got a strong heritage within one of our strongest businesses."

More recently, Solomon has been encouraging investment bankers to go beyond the CEOs they typically pursue for M&A transactions, and also to develop relationships with corporate treasurers and executives who oversee operations like hedging. The idea is to convince those who choose which to borrow from and trade with to use instead of powerhouses like or Citigroup Inc .

Solomon is not shy about getting personally involved, associates said, leading client meetings and giving feedback. He has also been a big proponent of cross-selling for many years. When he ran investment banking, he made a particular effort to connect people within the and investment management divisions to share expertise and ensure better client coverage.

"David has got everyone in a room talking about collaboration a lot more," another said.

Solomon clearly has some level of support internally - including from his boss, Lloyd Blankfein, who told Goldman's board of directors last month that Solomon was his top pick as a future successor, a person familiar with the matter said. That decision prompted Harvey Schwartz, the other co-chief operating officer, to announce this week that he will leave the in April.

But Solomon still has work to do in winning over Wall Street, where investors and analysts remain sceptical of management's revenue plan.

took a close look at assumptions behind Goldman's plan to produce $5 billion more in annual revenue by 2020 in a November report titled "All That Is Goldman Does Not Glitter." He concluded that management's view on the profit potential of consumer lending was too rosy and that, overall, the new business will not make up for high-margin trading revenue that has evaporated.

Others expressed similar doubts in interviews this week.

"is a master of markets...and those are tough shoes to fill," said Wells Fargo Mike Mayo

(Reporting by and Gregory Roumeliotis in New York; Editing by and Leslie Adler)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, March 14 2018. 07:03 IST
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