(Bloomberg) – Goldman Sachs Group Inc., sustained by losses in Uber Technologies Inc. and WeWork, has a message to investors in growth stocks: profit counts.
After years of pursuing revenue growth at all costs, driven by cheap money, markets are increasingly focusing on whether companies can translate top line expansion into profitability, CEO David Solomon said Tuesday in a comprehensive interview that also touched on Europe's negative interest rates and his plans for the bank's investor day in January.
Goldman Sachs, which relies on investments with its own money as an important profit driver, suffered the worst performance in more than three years last year from equity investments in public and private companies. The decline in valuations contributed to the perception that investments are subject to unpredictable fluctuations, even as the company works to provide more disclosure.
The bank hit $ 267 million on public equity investments such as ride-hailing company Uber Technologies Inc., Avantor Inc. and Tradeweb Markets Inc. Its stake in WeWork dropped by $ 80 million after plans for an initial public offering collapsed.
Solomon did not stop comparing the recent problems in the market for IPOs with the dot-com crisis, even though they emphasize how the markets, after years of unresolved loose monetary policy, require proof that companies can make money.
“Monetary policy that has started around the world has basically forced people out of the risk curve, forced people to look for other ways to drive returns, and one of the things they have been chasing is growth and to some extent growth at all costs, ”Solomon said in the interview. "The market here is talking and telling people here, let's tough it up a bit."
Solomon sought to put a positive spin on the unsuccessful WeWork IPO and said that it demonstrated that the capital markets are functioning properly. While there was a lot of hype around the company, investors were able to discuss relevant financial information and "it was a pretty clear view on whether the company could be made public," he said.
He declined to discuss the IPO of Saudi Aramco, the world's largest oil producer, because it is an active transaction. Saudi Arabia is aiming for a valuation of between $ 1.6 trillion and $ 1.8 trillion, according to people familiar with the matter. But analysts at banks working on the deal gave very different estimates.
"Different people want different value judgments and parameters," Solomon said. Still, "when you run an IPO process and get an IPO process to a point where a valuation area is set, and then you sell securities to investors, I don't think it's that difficult to get to a pretty tight range for what the market is Expect and where buyers and sellers can meet. ”
The CEO also waded into the debate on negative interest rates, suggesting that history will take a dim view of the monetary policy experiment. The European Central Bank has imposed negative interest rates on the banks for half a decade now. Some of Europe's most senior bankers have blown the policy, with CEO Deutsche Bank AG Christian Sewing saying it is destroying the economic system in the long run.
While central bankers claim to support the economy, the burden on commercial banks is increasing, and the industry is warning of harmful long-term side effects. Solomon, who took over at the helm of Goldman Sachs just over a year ago, also questioned their financial advantage.
"When we look back at negative prices, I think that when the book is written, it will not look like a great experiment," he said. "Growth in this part of the world has slowed, and negative rates have not allowed an acceleration of that growth in my opinion."
Read more: Banks count the cost of negative rates as ECB tries to ease pain
Losses on equity investments last quarter increase headwinds for Solomon, 57. Shares of Goldman Sachs, which are celebrating its 150th anniversary this year, have followed their peers as investors await the fallout from a global corruption scandal involving Malaysia's investment fund 1MDB. The CEO has also struggled to revive the trading unit, asking for patience with a new consumer business started by his predecessor.
Solomon sharpen the bank's partnership ranks and install new managers across divisions. He has pledged to lay out a vision for the company's future on the company's first investment day in January that could serve as a catalyst for the stock, though he warned on Tuesday that shareholders should not expect a strategic shift.
We have very, very good companies that we are very proud of, and we want to develop those companies a little bit, ”Solomon said. "I wouldn't expect any big disclosure."
(Updates with comments on the 8th paragraph WeWork IPO.)
– With help from Sridhar Natarajan.
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