In the verse of Horace, masterfully revived and refitted by Benjamin Graham in his magnum opus Security Analysis:
Many shall be restored that now are fallen,
and many shall fall that are now in honor.
Goldman Sachs fits, more plausibly than not, in the first category. The bank carries the aura its rivals chase but rarely touch. Bruises or not, it still wears the Wall Street crown.
In this business, brand is both moat and magnet. Which makes the market’s verdict all the stranger. Goldman trades at roughly eight times earnings — a multiple suited to a middling manufacturer, not a firm with a franchise that moves markets.
Some of the discount is the bill for 2008. The crisis pushed Goldman — and everyone else — into a regime of capital rules, leverage caps and regulators who don’t forget. The double-digit glory days vanished; return on equity settled into the low, dutiful tens.
Strategy didn’t help. While JPMorgan widened its lead and Morgan Stanley finally got its act together, Goldman wandered into side quests that dulled its mystique — a mystique built, in part, on derivative positions the bank calls hedged and liquid, and investors call opaque.
Then came Malaysia. The 1MDB affair was vast in scale and may yet be vaster in consequence. Small wonder optimists have kept their wallets shut.
But the numbers tell a quieter truth. Since 2010, management bought back stock by the truckload, lifted book value per share from $139 to roughly $216, and cut the share count by a third.
Below $200, the stock trades under book value — book earning roughly 10 per cent in a world where Treasuries barely nod. From any angle, few names in the S&P 500 are cheaper.
Fewer still come with Goldman’s gold-plated credentials.