Goldman Sachs Group Inc. (GS) CEO Lloyd Blankfein reportedly plans to depart later this year, and stock-market investors are signaling they're pretty much delighted.
The Wall Street Journal reported Friday that Blankfein, 63, is preparing to step down from the job as soon as the end of the year, citing people familiar with the matter.
Goldman shares jumped $3.76, or 1.4%, to $270.80 after the report.
Over the past year, Goldman's stock has severely lagged that of its big-bank rivals, gaining just 8% as JPMorgan Chase & Co. (JPM) surged 28% and Morgan Stanley (MS) rose 25%. The underperformance came as the firm, historically a Wall Street powerhouse, turned in a worst-in-class performance last year in the highly profitable business of trading stocks and bonds.
Goldman's juggernaut fixed-income division saw revenue plunge 30% last year, including the worst performance in commodities trading in the company's history as a public company. The firm's stumbles allowed JPMorgan Chase, Bank of America Corp. (BAC) , Citigroup Inc. (C) and Morgan Stanley to steal market share.
Making things worse, revenue in Goldman's stock-trading division slipped by 4.5% on the year, also more than peers experienced. Goldman's total trading revenue was down 18% on the year, more than double the average decline among the biggest Wall Street firms.
The performance was so abysmal that analysts including Dick Bove of Vertical Group had called for Blankfein, who has run the firm for a dozen years, to step down.
Possible successors include Goldman's two co-presidents, Harvey Schwartz and David Solomon, the Journal reported.
A Goldman Sachs spokesman declined to comment.
The departure would conclude Blankfein's 36-year career at Goldman, which he joined in 1982 as a gold salesman. He became CEO in 2006 after Hank Paulson became U.S. Treasury secretary.
Like most other big Wall Street banks, Goldman survived the 2008 financial crisis thanks to a multibillion-dollar bailout from the U.S. Treasury Department.
The company, which had been a brokerage firm in the years before the crisis, also got rapid approval from U.S. regulators to convert into a bank holding company following the collapse of Lehman Brothers Holdings Inc. The changein status allowed Goldman to borrow tens of billions of dollars more in secret emergency loans from the Federal Reserve -- desperately needed funding given the widespread panic among investors.
Yet following the crisis, according to Bove, Blankfein failed to take aggressive measures to overhaul the company's business model from one primarily focused on trading and investment-banking toward a broader, more diversified financial-services firm along the lines of larger peers JPMorgan, Bank of America and Citigroup.
"By staying the course, he took this company in the wrong direction," Bove said Friday in a phone interview.
Gerard Cassidy, an analyst at RBC Capital Markets, wrote Friday in a report that Goldman's historic use of borrowed money in trading -- known as leverage -- became outdated after the financial crisis. New regulations have also forced banks to reduce their borrowing levels and curtail big market bets with the company's own capital, previously a big source of profits for Goldman.
"The banking and investment banking world has changed making the old traditional `Goldman Model' less profitable," Cassidy wrote. Goldman's net income has declined by 63% from 2007 levels, he noted. "The company has recognized the need for change."
In December 2016, after Blankfein's longtime No. 2, Gary Cohn, departed to become head of President Donald Trump's National Economic Council, the company named Solomon, who was co-head of investment banking, and Schwartz, who had served as CFO, to become co-presidents. At the time, Blankfein pledged to work with them in "formulating and executing our global strategy."
At the time, a person familiar with the matter said Blankfein had no plans to leave anytime soon, trapping Cohn in his deputy job and thus precipitating his departure.
Cohn quit his job at the White House this week, reportedly due to frictions with the president over a plan to impose big tariffs on steel and aluminum imports. At Goldman, Cohn had been a champion of free trade.
After last year's trading underperformance -- and the corresponding pall over the share price -- sparked so much concern among Goldman investors that Blankfein might have lost his touch, the company announced a growth plan to invest $5 billion in such things as increased corporate lending. Goldman also promised to reduce its reliance on fast-moving hedge fund clients as unusually small price swings in global markets sapped demand for new trades.
Goldman also promised to seek more trading business from corporate clients -- a pledge that drew immediate skepticism from some analysts, given the aggressive competition from rival Wall Street firms.
"Whether stays or leaves, it doesn't change the fact that this company is struggling at the moment," Bove said.