Banking: Goldman Sachs stock has underperformed peers as CEO David Solomon’s tough year gets tougher

There was news this week of a fresh Justice Department inquiry into Goldman’s role as both a banker and securities acquirer of Silicon Valley Bank in the period leading up to SVB’s collapse. In addition, The Wall Street Journal reported about criticism of Solomon from some of the firm’s partners and its ex-CEO, Lloyd Blankfein.

The past week’s underperformance comes after a less-than-stellar year-to-date showing for Goldman Sachs stock compared to JPMorgan, Morgan Stanley
MS,
-1.08%
and the Dow Jones Industrial Average. (See chart below)

So far in 2023, Goldman Sachs’s stock has fallen by 1.3%, while JPMorgan Chase’s has risen 6.9%; Morgan Stanley’s is up 4.1%; the Dow Jones Industrial Average has gained 3.9%; and the S&P 500
SPX,
-0.37%
is up by 15.3%. The only major bank that has done worse is Bank of America Corp.
BAC,
-0.61%,
which is down 11.4% so far in 2023. Wells Fargo & Co.
WFC,
-0.42%
is up by 2.3% and Citigroup Inc.
C,
-0.76%
is up by 6.7%.

Goldman’s market cap is now $112 billion, compared to $147 billion for Morgan Stanley. Is there a new investment banking king on Wall Street?

Also Read: Goldman explores strategic alternatives for its consumer-banking business

The latest headache comes in the form of the government inquiry into Goldman as both a purchaser of securities in Silicon Valley Bank’s portfolio and as an adviser on a capital raise that was proposed in the days leading up to the bank’s takeover by federal regulators on March 10, as initially reported by The Wall Street Journal.

Regulators are focusing on whether investment bankers at Goldman Sachs and the bank’s trading unit were communicating improperly about the portfolio sale.

Columbia Law School Professor John Coffee told MarketWatch that based on what’s surfaced in reports thus far, he doesn’t see a strong case of insider trading against Goldman Sachs with Silicon Valley Bank.

“There is no smoking gun here because Goldman does not appear to have traded in Silicon Valley stock; thus, they did not use any insider information that they may have possessed,” Coffee said.

There was no evidence in what’s been seen thus far that Goldman Sachs traded Silicon Valley Bank stock during this period.

“Goldman may have had privileged information but they did not use it,” Coffee said.

The bank’s notification to SVB that it would need an independent adviser on the sale of securities shows that the bank took steps to protect against an appearance of a conflict. “They sensed there was a problem,” Coffee said.

The separate WSJ report on partners complaining about Solomon featured gripes about Solomon’s hobby as a disc jockey being a distraction. Others are reportedly upset about Goldman’s setbacks related to its push into consumer banking under its Marcus unit, which is now being restructured.

Also Read: Goldman Sachs’s stock falls as profit tops target but revenue falls short

For his part, Solomon has been visible, including an appearance on CNBC-TV earlier this week when he said, the U.S. economy remains resilient. “I would say that I have been surprised,” Solomon said.

Also Read: Goldman Sachs CEO David Solomon ‘surprised’ at U.S. economy’s resilience, says ‘it’s a period to be a little bit cautious’

Tomi Kilgore contributed to this report.