Goldman must 'rethink strategy'

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Bove: Goldman must 'rethink strategy' after 'lost decade'

“Transformational change” could be the remedy for the bank after a “lost decade.”

Jon Marino | @JonMarino

CNBC.com

Goldman lost decade

Richard Bove, Rafferty Capital Analyst, discusses his recent note about Goldman Sachs, saying that the company must rethink its strategy Goldman Sachs has gone through a "lost decade" and needs to reconsider its strategy, one Wall Street analyst thinks.

"It is not difficult to understand what happened to Goldman Sachs in the past decade. The industry it services was dramatically restructured. The company was not," Dick Bove, vice president of equity research at Rafferty Capital Markets, wrote in a note to clients. "The company needs to rethink its strategy and consider transformational changes in every aspect of its operations."

Bove's report was titled "The Lost Decade," looking into the bank's struggle in a rapidly reforming financial services industry, in which he criticized Goldman Sachs' leadership and executive pay structure.

Bove's comments follow a first-quarter earnings report from Goldman that topped expectations, but missed on revenue as income from trading businesses plummeted.

The bank did not respond to a request for comment on Bove's report.

Jin Lee | Bloomberg | Getty Images

Dick Bove

Bove highlighted Goldman's performance compared to the S&P 500 since Dec. 29, 2006, and contrasted it against the pay of its CEO and COO — $265 million and $254 million, respectively.

Over that time frame, top executives were paid more than a half-billion dollars, Bove noted, but Goldman under performed an S&P 500 that gained more than 47 percent. 

From the end of 2006 through Friday, Bove said Goldman's stock fell by 19.6 percent.

"What management did not fathom was the better approach would have been a transformational change so that capital could be used in a more productive fashion than supporting businesses that were declining on a secular basis," like trading and investment banking, Bove wrote.

Turbulent markets weigh on GS results CNBCs Mary Thompson breaks down the big banks quarterly results which beat on earnings but missed on revenues.

While Bove's criticism is harsh, it's worth noting that Goldman's performance over his "lost decade" is only middle-of-the road when compared to the other biggest banks in the U.S. Only JPMorgan Chase and Wells Fargo stock outperformed Goldman shares over the period Bove targets.


It's notable that both JPMorgan Chase and Wells Fargo have strong consumer banking operations — a business Goldman recently invaded through the acquisition of GE Capital's loan portfolio and its launch of an online consumer savings business. But that's not enough, Bove told CNBC.com.

"All these initiatives are very small," Bove said. "What was needed was transformational change."





Link: http://www.cnbc.com/2016/04/25/bove-goldman-sachs-must-rethink-its-strategy-after-lost-decade.html?__source=newsletter|eveningbrief


  

Lloyd Blankfein steered Goldman Sachs through a decade of turmoil

Dakin Campbell and Jenny Surane,

Bloomberg News | April 20, 2016 

Getty Images Csteered Goldman Sachs through a decade of turmoil including the 2008 financial crisis, but now the firm is trying to weather a storm of a different sort.

Lloyd Blankfein’s decade ending on Wall Street

To see how Wall Street has changed over the past decade, look to Goldman Sachs Group Inc. under Lloyd C. Blankfein.

Goldman Sachs Group Inc., once the most profitable securities firm, reported the lowest first-quarter revenue of Blankfein’s tenure as chief executive officer, which began June 2006.

Return-on-equity, a closely watched measure of profitability, fell to 6.4 per cent, well below where it needs to be to show investors the firm can create value.

The results this week stem from sweeping structural changes buffeting Wall Street and renewed questions about whether firms including Goldman Sachs are doing enough to adapt to the altered landscape. 

The bank has been trying to wait out a years-long slump in fixed-income trading to win market share and boost profits once conditions improve. But will the industry ever rebound — and if so, will it be soon enough?

It was an “un-Goldmanlike quarter with revenue pressures on just about every business,” Glenn Schorr, an analyst at Evercore ISI, wrote in a note. While market tumult at the start of the year eventually subsided, “Goldman (and everyone else) really needs capital markets to open further,” he said.

Markets stabilized in March and April after a rough start to the year, which suggests Goldman Sachs' revenue may improve in the remaining months, Sandler O’Neill + Partners analysts Jeffrey Harte and Sumeet Mody wrote in a note on Tuesday.

 

The first-quarter results at Goldman Sachs show how hard it is for global investment banks to navigate increasingly difficult terrain. Blankfein, 61, led his firm through the 2008 financial crisis in better shape than many rivals and posted record profit in 2009. In subsequent years, he shepherded the company through assaults on its reputation, including a congressional inquiry into pre-crisis sale of mortgage-linked investments.

Now the firm is trying to weather a storm of a different sort, as 

• new rules cut leverage used to amplify returns, 
•  make bond inventory more expensive and 
• prohibit the proprietary trading that was once one of Wall Street’s biggest sources of profit. 

In this year’s U.S. presidential election, the bank has become a target for candidates including Senator Bernie Sanders, who has repeatedly criticized it in debates, stump speeches and campaign ads.

Goldman Sachs’s revenue was 10 per cent lower last year than in 2006, when Blankfein took the helm.

At the start of this year’s first quarter, typically Wall Street’s busiest, market volatility and falling asset values drove clients to the sidelines, curbed deal making and further cut into trading across the industry.

Goldman Sachs’s investment-banking revenue fell 23 per cent to $1.46 billion amid a dearth of initial stock offerings. Trading revenue tumbled 37 per cent from a year earlier to $3.44 billion.

The same forces eroded earnings across Wall Street at the start of the year.

In the past week, JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley all reported lower net revenue.

Morgan Stanley, which has been shrinking its fixed-income operations, posted the biggest drop in sales and trading of that group — about 32 per cent less than a year earlier.

Investment-banking revenue tumbled 27 per cent at Citigroup.

All of the companies cut expenses to cushion the blow. 

JP Morgan and Bank of America also were able to generate more income from their consumer businesses.

Blankfein has taken some steps in that direction, building up the firm’s Main Street operations and departing from its customary focus on institutional clients by operating a deposit- taking bank and planning an online lender. The asset management group purchased a retirement-plan startup this year that serves small businesses and freelance workers.

He has invested in technology, too, both to drive innovation and reduce the cost of having humans do tasks better served by machines. Blankfein has touted the programmers and other support staff he’s added in recent years.

The firm’s workforce has grown to 36,500, including consultants and temporary staff, up from the 24,000 it employed at the end of May 2006, when its figures didn’t include those people.

The Wall Street slump has led the CEO to cut pay and other costs, with the $2.1 billion of non-compensation expenses in the first quarter the lowest in almost seven years.

People familiar with his efforts have said he’s also embarked on the largest cost-cutting push in years, dismissing support staff, rejecting bankers’ spending on airfare, hotels and entertainment unless it directly serves clients, choosing not to fill open positions, and spending less on printing pitch books or brochures.

In the meantime, he and President Gary Cohn, 55, have defended the firm’s focus on trading, writing in their annual letter to shareholders they will continue to wait out the downturn in fixed-income markets. 

The bet is that Goldman Sachs can withstand structural changes to the industry and ultimately thrive as competitors, especially in Europe, pull back.

At the core, “he kept a pure investment bank,” and it’s already better adapted for the new market than most other firms, said Paul Gulberg, an analyst at Portales Partners LLC. “You have to judge it in the context of the environment and relative to peers.”

The firm has created value, Chief Financial Officer Harvey Schwartz said Tuesday, citing an increase in book value and $25 billion returned to shareholders over the past four years. The dividend is about double what it was when Blankfein took over.

Indeed, Goldman Sachs’s investors have fared better under Blankfein than at many other financial firms. 

The stock returned 17 per cent from mid-2006 through the end of March, including reinvested dividends, while the 90-company Standard & Poor’s 500 Financials Index lost 14 per cent.

When Hank Paulson handed Blankfein the CEO’s title in 2006, Wall Street’s mortgage machine was humming. The firm reported almost $38 billion of revenue that year and $46 billion in 2007 before seeing it cut in half to $22 billion following the collapse of Lehman Brothers Holdings Inc.

Revenue climbed back to about $34 billion by 2012, and has hovered around that level for four straight years.

Many analysts have used the firm’s quarterly conference calls to ask for more clarity on when, and how, it can increase. On Tuesday, Schwartz attempted once more to defend the firm’s strategy from those demanding more widespread changes.

“We can’t control what happens in terms of the environment,” he said. 
“You really have to look at this over long periods of time.”




Bloomberg.com

 Link:  http://business.financialpost.com/news/fp-street/lloyd-blankfeins-decade-ending-with-a-thud-on-a-humbled-wall-street

The Leadership Plan: Boone Pickens

 

Published on Dec 3, 2012

Oklahoma
State University alum, oil entrepreneur and billionaire Boone Pickens
debuted his leadership speech at TEDxOStateU. Pickens gives tips and
tricks for becoming a successful leader.

• 
  

  Category Education
  

Link: https://youtu.be/aeiSXpmMQys

 

Pharmaceutical Stock Price Manipulation: Anavex Plays the Orphan Drug Stock Promotion Game

One more angle for selling shares....are these companies almost breaking 'Blue Sky Laws' for news releases, by implying value and meaning in the orphan drug designation?

Anavex Plays the Orphan Drug Stock Promotion Game

By Adam Feuerstein Follow | 04/12/16 

I'm in a fighting mood, so let's get into it with Anavex Life Sciences (AVXL) over last week's stock promotion stunt, tied to its meaningless "The FDA Awarded Us Orphan Drug Designation!" press release.

Too many investors have a fundamental misunderstanding about the significance of orphan drug designation. I should say, insignificance, because the FDA delineation, on its own, means very little. 

Yet almost every day, biotech companies like Anavex issue press releases touting orphan drug designation as if it were an achievement of supreme importance.

It's not, and I'll explain why below.

Anavex issued said press release on Friday. It contains a wee bit of truth. On April 6, the U.S. Food and Drug Administration granted orphan drug designation to the company's experimental compound Anavex 3-71 for the treatment of frontotemporal dementia.

But then, Anavex goes off the rails with this canned quote from Kristina Capiak, vice president of regulatory affairs: "We believe that Orphan Drug Designation for Anavex 3-71 for the treatment of frontotemporal dementia is a significant achievement."

Sure, if you consider answering eight questions on a standardized Food and Drug Administration form to be a "significant achievement."

Answer eight questions on an FDA form. Do it correctly. Make two copies of the form. Send to FDA. That's all it takes for any biotech and drug company to secure orphan drug designation from the FDA. It's really that easy.

Is that a "significant achievement"? No, except if your ulterior motive is to hoodwink gullible retail investors into buying your stock.

Let's tell some truths about orphan drugs and the FDA.

The Orphan Drug Act was enacted to incentivize drug makers to develop new treatments for rare diseases, defined as a disease affecting 200,000 patients or fewer.

The FDA grants seven years of market exclusivity to an orphan drug, if it is approved. Companies developing orphan drugs also get priority review, research tax credits and a waiver of FDA fees.

Drug companies like the goodies that come with developing orphan drugs, but what they love most is the ability to charge really high prices for approved orphan drugs -- and not worry too much about reimbursement headaches from insurance companies. 

Lots of companies want to emulate the biotech sector's most successful orphan drug developers like Alexion Pharmaceuticals (ALXN - Get Report) , which charges $500,000 or more per year for Soliris, a drug that treats several rare blood diseases.

The FDA granted 354 orphan drug designations in 2015, a 22% increase over 2014. During last week alone, seven other drugs were granted orphan drug designation in addition to Anavex-371. You can search the FDA's orphan drug database here.

Orphan drug designation is the starting point in the regulatory process. It's the acknowledgement drug makers get from the FDA that their experimental compound will be eligible for orphan drug benefits -- IF IT IS APPROVED.

That last bit is the kicker. Orphan drug designation doesn't mean the FDA favors a drug or believes a drug will be approved. 

Let me repeat that: If you believe orphan drug designation connotes favor from FDA or correlates in any way with higher approval chances or proven benefit for patients, you are sadly misinformed.

I wasn't joking earlier when I said securing orphan drug designation requires a company to answer eight questions on an FDA form. Here's the FDA instruction form: How to Apply for Orphan Drug Designation.

There are eight questions. Simple. Need help? The FDA provides it here: Tips for Submitting an Application for Orphan Designation.

Only question No. 4 requires significant work. In addition to providing the FDA with a description of the drug's active moiety or molecular structure, the agency asks companies to submit the following:

A discussion of the scientific rationale to establish a medically plausible basis for the use of the drug for the rare disease or condition, including all relevant data from in vitro laboratory studies, preclinical efficacy studies conducted in an animal model for the human disease or condition, and clinical experience with the drug in the rare disease or condition that are available to the sponsor, whether positive, negative, or inconclusive. 

Animal toxicology studies are generally not relevant to a request for orphan-drug designation. 

Copies of pertinent unpublished and published papers are also required.

The FDA doesn't care if the data submitted is "positive, negative or inconclusive." As long as a company can make a "medically plausible" case for the drug treating a rare disease and provide coherent responses to seven other easy questions, the FDA will grant orphan drug designation.

To Anavex, achieving orphan drug designation for Anavex 3-71 is a "meaningful achievement." To everyone else, it's a homework assignment.

I can list a few real companies with drugs awarded orphan drug designation which later blew up or were rejected by the FDA.

BioMarin's (BMRN - Get Report) drisapersen received an orphan drug designation from the FDA. Drisapersen was also anointed with a rare pediatric disease designation, fast track status, priority review and breakthrough therapy designation. The FDA rejected drisapersen.

Catalyst Pharmaceuticals' (CPRX) Firdapse received orphan drug designation and breakthrough therapy designation. The FDA issued Catalyst a refuse-to-file letter for Firdapse, meaning the new drug application was insufficient for review.

Celldex Therapeutics' (CLDX - Get Report) rindopepimut was designated orphan drug and breakthrough therapy. Rindopepimut failed in a phase III study and is now being put on the shelf.
Anavex hasn't even tested Anavex 3-71 in humans yet. The orphan drug designations means nothing.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.
 

Source: http://www.thestreet.com/story/13524933/1/anavex-plays-the-orphan-drug-stock-promotion-game.html?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202016-04-13%20BioPharma%20Dive%20[issue:5542]&utm_term=BioPharma%20Dive

 

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Definition of tax inversion.

Definition of tax inversion. A transaction used by a company whereby it becomes a subsidiary of a new parent company in another country for the purpose of falling under beneficial tax laws. Typically they are used by US companies to move to lower tax domiciles, in Europe in particular.

Tax Inversion Definition from Financial Times Lexicon

lexicon.ft.com/Term?term=tax-inversion