Can the bank reinvent itself?
The first task for David Solomon, who took over as chief executive last October, is to clean up Goldman’s reputation. In 2012 and 2013 it helpedraise $6.5bn across three bond offerings, earning $600m in fees—far above the norm for such work. American and Malaysian authorities have alleged that much of the money raised was stolen in a scheme masterminded by Jho Low, a Malaysian financier. He has denied wrongdoing .
But criminal charges have been filed against the firm in Malaysia. Though Goldman is contesting the case, it is spooking shareholders, who worry about both onerous fines and what it implies about oversight at the bank. Since November its share price has underperformed an index of other bank stocks by 10.3 percentage points, suggesting that the scandal may have wiped as much as $9.1bn off its value.
Goldman’s slowness in reacting to these structural changes has allowed its competitors to catch up. In 2010 its return on equity was 11%, easily beating the 8% average for “bulge-bracket” American investment banks, a group including JPMorgan Chase and Morgan Stanley. But last year that group averaged anof 11.2%, placing Goldman, at 12%, only slightly ahead of the middle of the pack. And investors are becoming concerned about the way it earns its returns.
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