Goldman Sachs (NYSE:GS) reported its fourth quarter and 2014 year-end results last week, and beat the market's expectations on both revenue and earnings. However, there were some areas of weakness, including sharp declines in underwriting, fixed-income trading, and the investing and lending division.
So, what does Goldman's management have to say about the performance, as well as the future direction of the company? Here are five things from Goldman's conference call that investors should pay attention to.
Goldman is adaptable
According to Goldman Sachs' CFO Harvey Schwartz; part of Goldman's competitive advantage is its ability to respond to changes. As he said, "It's hard for me to imagine any of our businesses and say, look; they're going to stay exactly the same for the next 10 years."
Schwartz was referring to weakness in the individual parts of the business, as well as regulatory changes, both of which have been a big factor lately.
For example, he said that weakness in Europe and Asia can be offset by U.S. strength, and that weakness in institutional client services can be overcome by strong investment banking performance.
And the firm has achieved strong results despite unprecedented levels of regulatory changes in recent years. In order to de-risk the balance sheet, Goldman sold off businesses that produced more than $2 billion in annual revenues, which it had to replace (and did, successfully).
So, management wants investors to know that Goldman is ready, willing, and able to thrive no matter what the markets or the government does.
There are plenty of opportunities ahead
Schwartz also said that Goldman's economists have a generally positive view for the coming year in terms of U.S. growth, as well as Europe and Asia's stability.
If we continue to see stability, interest rates begin to normalize, and GDP grows steadily, it could be a big boost for Goldman. Those factors have historically increased global confidence and therefore increased investment and banking activity. So, as the economy makes progress, Goldman has strong opportunities to increase revenue.
Another opportunity that Goldman has is to diversify itself geographically beyond its New York headquarters. The company has already begun doing this in places such as Salt Lake City and Bangalore, but there is still room to expand, as just 25% of the firm's employees are in these and other non-headquarters locations.
The Swiss Franc drama creates opportunity for Goldman
The first thing Schwartz said on the matter of the Swiss currency drama is that it is "immaterial from an economic perspective" as far as Goldman Sachs is concerned. So investors have nothing to worry about in that regard.
However, he also said that it creates an opportunity for high-level engagement with clients who are affected by it.
Low oil prices can be good or bad
On one hand, a period of sustained low oil prices definitely creates stress for certain companies. That goes without saying.
However, Goldman sees low oil prices as a big "tailwind" for consumers, as it lowers their expenses and increases the amount of discretionary income they have. So, lower oil prices could ultimately boost global economic growth.
And there will be further opportunities to help the firm's clients who have been affected by falling oil, such as deploying new hedging strategies and exploring merger opportunities.
Goldman is stronger as a whole
Finally, one of the more interesting questions of the call asked whether or not Goldman Sachs would do better if it were broken up.
Schwartz first pointed out that at around $850 billion in assets; Goldman is significantly smaller and less complex than many of its competitors.
And, he said that Goldman provides more value to its clients as a single collection of businesses, as the different parts of Goldman work together nicely. He said many of Goldman's businesses -- including fixed income, equities, investment banking, and others -- are very synergistic, but the firm would consider anything (including breaking off parts of the business) if it thought it would create more value for its clients.
In a nutshell
Goldman seems to have a very optimistic and opportunistic view for 2015, as it seeks to capitalize on the combination of strong global growth as well as major issues such as oil and currency fluctuations that will create the need for its services.