When long-time, sometimes controversial bank analyst Mike Mayo speaks it's often wise for investors to listen.
Recently plucked up by Wells Fargo (WFC) to cover the banking space, Mayo is fresh off a meeting with top Goldman Sachs (GS) management, including CEO Lloyd Blankfein. Mayo's mention of a possible "revenue breakout" in a new note dropped in our email box Tuesday is attention-grabbing:
"Our meetings with Goldman's CEO (Lloyd Blankfein), co-head of investment banking (John Waldron), and head of Goldman Sachs Bank (Stephen Scherr) reinforced our view that Goldman should show a break-out in revenues. Management seemed confident. Investment banking benefits from its sweet spot of big deals and a multiplier effect. Trading benefits from an improved environment (QE reversal, economic growth, deregulation, European bank pull back). Investing is in decent shape, and deals come to it. Lending is more annuity-like.
Also, revenues can be layered on at lower margin cost (such as for comp). Negatives include what we see as temporary 2Q18 reduction in QoQ market volumes and buybacks (halted). Also, the perception drag from Marcus is not likely to go away, though this is small ($2bn of loans on $1tn balance sheet).
Net-net: Goldman seems on the cusp of a top-line breakout. The jury may remain out for new efforts but legacy strength should carry the firm."