Streetwise for Sunday, March 15, 2019

One of the most talked about articles published recently by Bloomberg News was on the periphery of the securities markets and had nothing to do with investing.

Rather it was about the new Goldman Sachs’ “Firmwide Dress Code” memo, which, in classic Goldman fashion, emphasizes clients and teams and a “one firm philosophy,” but does not really describe the dress code at all.

Condensed, the memo said, “Given our one firm’s philosophy and the changing nature of workplaces generally in favor of a more casual environment, … please dress in a manner that is consistent with your clients’ expectations …  we trust you will consistently exercise good judgment in this regard. All of us know what is and is not appropriate for the workplace.”

Goldman’s dress code is that you should dress the way you’re supposed to dress at Goldman. If you must ask, well… What you wear is the least complicated part of Goldman, and if you need explicit rules for how to dress then you’ll never master the hard parts.

“Important people like to deal with important people,” John Whitehead, co-head of Goldman Sachs in the 1970s, once wrote. “Are you one?” That is the dress code.

Interestingly, Goldman’s dress code has not required suits for many years, has never required bespoke suits. and will probably continue to require suits for most client meetings outside of the tech industry. 

Note, the term bespoke in fashion is reserved for individually patterned and crafted men’s clothing, analogous to women’s haute couture. The term originated from Savile Row, a street in London considered the “Golden Mile of tailoring”.

Although they do not generally address dress codes, there have been hundreds of articles written about the “world’s most powerful investment bank,” or as journalist Matt Taibbi famously called it back in 2010, the “great vampire squid.”

The funny thing is that a hundred years ago, people angrily compared the House of Rothschild to a giant octopus with its tentacles wrapped around the U.S. economy.

More to the point is Goldman’s value as an investment vehicle. For the company’s fourth quarter ending December 30, revenues were $8.08 billion, resulting in net earnings of $2.54 billion. For its fiscal year, the company posted revenues of $36.62 billion resulting in net earnings of $10.46 billion. 

Earnings per share came in at $25.27 for the year, as compared to 

$9.01 for the year ended December 31, 2017. Fourth quarter earnings per share were $6.04, as compared to a loss of $5.51 for the fourth quarter of 2017.

Return on shareholders’ equity (ROE) was 13.3 percent for 2018 and for the fourth quarter the company posted an annualized ROE was 12.1 percent, despite the S&P 500 index being down about 14 percent for the quarter.

Wall Street is quite bullish on Goldman despite its negative connotation. Yes, Goldman has faced difficulties since CEO Lloyd Blankfein handed the reins over to incoming CEO David Solomon. At its worst point, the stock had declined by as much as 33 percent through late December 2018.

Although this was far worse than the S&P 500’s decline, Goldman has made a remarkable comeback following the steep selloff, as the stock has gained about 30 percent from its low point. 

Blankfein was certainly a capable and charismatic CEO. And not much is likely to change under Solomon’s leadership. Goldman Sachs is an incredibly well-oiled money-making machine, and the company should do just fine with Solomon at the helm.

The effects of the Malaysia scandal are likely to be transient. Nonetheless, an ex-Goldman banker pleaded guilty, Malaysia has filed criminal charges, and the Justice Department has an open investigation into Goldman’s involvement.

Ultimately, it is likely that Goldman will need to pay a sizable fine, but nothing that will put pressure on the company long term. Goldman is periodically involved in controversial activities, but this should not be a surprise to anyone who follows Goldman.

My 2019 earnings estimate is $26.50 with a projected 12-month share price of $215.60 for a 10 percent capital gain. There is also a 1.66 percent dividend yield.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.