Sideways: Great question, guys
Stock analysts have long been mocked for their fawning attitude towards bank CEOs and CFOs on earnings calls. The phrase ‘great quarter, guys’ as an opening gambit became such a cliché that most analysts eventually toned down their approach, and some – led by self-appointed scourge of Wall Street Mike Mayo – have even started showing open scepticism about the corporate bromides delivered by bank executives.
The bank chiefs themselves typically maintain their natural tone. JPMorgan CEO Jamie Dimon displays an air of incredulity that anyone should question the performance of his bank, even when he is discussing a bizarre multi-billion dollar trading loss or a record legal settlement for previous misconduct. Morgan Stanley CEO James Gorman delivers a convincing performance as a management consultant whose greatest pleasure in life is shutting down business lines, ideally when he gets to fire a few traders.
Goldman Sachs CEO Lloyd Blankfein, who only puts in an appearance on earnings calls from time to time, deploys his trademark wisecracks to deflect questions about the long-term viability of the bank’s strategy.
Blankfein’s proxy on most earnings calls – CFO Harvey Schwartz – introduced a new twist on the traditional master/servant relationship between bank heads and analysts in discussing Goldman’s most recent quarterly results, however.
Goldman has just finished what is a disappointing year by its normal standards. It lost market share in both fixed-income and equities trading and is subject to growing questions about whether it has the right business mix for the future.
In discussing a year that was weak, without being disastrous, Goldman appears to have decided to attempt a form of communications jujitsu on its earnings call by portraying worrying trends as positive, and Schwartz adopted a personal tone that was about as warm and fuzzy as a Goldmanite can get.
Schwartz talked of "finding balance" as a goal for Goldman, while also downplaying the importance of market share for the firm. "We always prioritize risk management over market share," he said, in an apparent attempt to imply that competitors were taking business from Goldman because of a reckless approach to risk.
This line was undermined by an increase in reported value at risk for the quarter at Goldman that was higher than the change at many of its peers, but Schwartz stuck to his guns and even delivered a koan worthy of a Buddhist philosopher. "All revenues are not created equally," the sage of 200 West Street mused. "There is risk in these revenues [that] you have to look at past the returns."
Staying in character as a friendly philosopher, Schwartz took care to greet each analyst in turn by first name as they delivered their questions. And he commended the analysts on the perspicacity of their questions so metronomically that the approach had clearly been agreed in advance.
"Great question!" Schwartz said repeatedly, as analysts delivered valid but predictable queries about when Goldman would resume announcing a return-on-equity target, the challenges faced in fixed income and the prospects for investment banking deal-making in 2014. As the call wore on Schwartz introduced an element of variety. "It’s a good question," he said to an enquiry about the difference between Goldman’s investment and lending revenues and its client business. "It’s an important question," was his evaluation of a query about whether Goldman should deploy its balance sheet more aggressively in prime broking. And an enquiry about whether litigation reserves can be expected to fall at the bank received the ultimate plaudit. "This is a very important question," Schwartz said, without actually delivering an answer.
Towards the end of the call Schwartz delivered a take on the backdrop for investment bank earnings at Goldman in 2014 that was a masterly example of his new philosopher-CFO approach. "You could certainly take an optimistic view," he said. "But I am not doing that."
Goldman might face further headwinds in terms of maintaining market share and boosting its return on equity, but it can at least take comfort from the increasingly accomplished public performances of its CFO of just over a year.