Dick Bove Cuts Goldman as Shedding Top Staff Signals ‘Turmoil’
Bove flagged “stress in the organization,” and called the possible exit of those top managers a “sign of the challenges.”
(Bloomberg) -- Odeon Capital’s Dick Bove cut his rating on Goldman Sachs Group Inc. to hold from buy, saying that eliminating top executives “suggests an unhealthy level of turmoil.”
“I respect CEO David Solomon because he seems to clearly understand the problem that Goldman Sachs is in and he is moving aggressively to fix it,” Bove wrote in a note. “However, the task is sizable and apparently it will take more time and more effort to put the company on a sounder course.”
The Wall Street Journal reported this week that the company continues to shrink the number of people holding top ranks, and said that as many as a dozen partners are in talks to leave by year’s end. The paper said up to 15% of Goldman’s partners may depart in 2019.
Bove flagged “stress in the organization,” and called the possible exit of those top managers a “sign of the challenges.”
Read more: Goldman’s Elisha Wiesel May Go as Partner Rank Shrinks, WSJ Says
The bank’s “core businesses has changed and the company did not change with it,” Bove wrote. That’s led to revenues that are “below where they were 10 years ago and approximately the same as they were five years ago.”
Goldman has been hit by the “Fourth Industrial Revolution,” Bove said, which has triggered digitization that’s impacted businesses like trading and investment management, two of Goldman’s “three key activities.” The bank has “failed to take the necessary steps to evolve with the changes,” he said, like increasing target markets, adding new financial products, plunging into ETFs “aggressively enough” and creating recurring revenue streams from businesses like lending.
Plus, Goldman didn’t “shift from an elitist mentality (partners) into a workman mentality (shareholders and employees),” or “guard its reputation (Venezuela; Malaysia, the Mid-East and who knows),” Bove added.
Goldman shares rose as much as 3.6% Thursday, the most since June 10, before paring those gains to 2.6%. The stock has rallied 24% so far this year, compared with a 15% gain for the S&P 500 financial services index.
Banks broadly surged on Thursday, buoyed by the yield on 10-year Treasuries rising toward 1.6%, strong private payrolls data and an agreement between China and the U.S. to hold trade talks next month.
To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley
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