By Lauren Tara LaCapra
Sept 7 Goldman Sachs Group Inc management
believes the bank can produce a return-on-tangible-equity of 20
percent under better operating conditions, Sandler O'Neill
analyst Jeffery Harte said in a report on Friday after meeting
with three senior bank executives.
The figure is far above the single-digit
return-on-tangible-equity figures the investment bank has been
producing lately, and it signals that Goldman executives have
become more optimistic about future results.
Goldman executives first outlined a 20 percent
return-on-tangible-equity target after the financial crisis,
which the bank hoped to achieve over the long term across good
and bad market conditions. Executives have since backed down
from the goal without offering a new one, citing uncertainty
about how financial reforms might affect profits.
The measure is closely watched by investment bank
shareholders because it indicates how much profit Goldman can
generate with shareholder money.
A Goldman spokesman declined to comment on Harte's report,
citing a bank policy of not commenting on analyst notes, but
pointed to executives' earlier statements.
"We just haven't even worked it out in our own mind where it
settles out," Goldman Chief Executive Lloyd Blankfein said at a
conference last year. "So we haven't reported it officially, and
we haven't sorted it out even unofficially amongst ourselves."
At an event in May, Goldman's president, Gary Cohn,
reiterated that the bank "is not in a position to offer a new
ROE target today."
But after meeting with the bank's chief financial officer,
David Viniar, and two of Goldman's co-heads of securities,
Harvey Schwartz and Isabelle Ealet, Sandler's Harte said that
"management sees nothing today that would keep Goldman Sachs
from posting a (return-on-tangible-equity) of 20 percent or
better in a more robust macro-operating environment."
Before the onset of the subprime financial crisis in 2007,
Goldman had produced annual return-on-tangible-equity figures
above 30 percent. Last year, the bank's
return-on-tangible-equity was just 3.7 percent, hindered by weak
trading volumes, sluggish deal activity, a loss in one quarter,
and the repurchase of an expensive investment by Warren Buffett.
Harte, who rates Goldman a "buy" and raised his share price
target by 4 percent to $125, said he expects the company to
continue returning capital to shareholders through stock
buybacks and dividends until market conditions improve.
"We walked out of the meetings feeling more confident about
Goldman Sachs' relative position to capitalize on opportunities
in the currently challenged revenue environment," Harte said in
Goldman shares were up 2.4 percent at $116.31 on Friday
afternoon. Through Thursday, the stock is up 26 percent so far