Goldman Sachs CFO Stephen Scherr on 2020 and How the Firm is Tracking Against Its Goals

Episode Summary

Executive Summary: Goldman Sachs CFO Stephen Scherr reviews a highly unusual 2020, explaining how the firm navigated the pandemic, met or outperformed several Investor Day targets, and accelerated strategic changes in business mix, technology, transparency, and capital management. He argues the crisis validated Goldman’s pivot toward client service, digital execution, and less capital-intensive growth.

Main Topics: 2020 Crisis Management and Operational Resilience: Scherr describes March 2020 as a period when the U.S. financial system partially seized up, forcing banks to solve liquidity, processing, and counterparty uncertainty while maintaining daily operations and risk controls. Investor Day Targets and Performance Tracking: The discussion revisits Goldman’s 2020 Investor Day goals and measures progress on ROE/ROTE, expense efficiencies, deposit growth, and funding optimization, emphasizing that the firm is broadly ahead or on track despite pandemic distortions. Business Segment Performance: Scherr walks through investment banking, global markets, asset management, and consumer/wealth management, highlighting uneven sector dynamics but strong overall execution and client demand across the year. Technology Acceleration and Digital Transformation: Remote work and client behavior pushed faster adoption of home-working infrastructure, digital trading, transaction banking, and consumer platform development, reinforcing Goldman’s shift from high-touch to higher-volume digital channels. Capital, Stress Testing, and Regulatory Management: He explains how Goldman managed capital through COVID and CCAR surprises, kept buffers above minimums, and is working to reduce balance-sheet intensity and improve how the Fed models the firm. Transparency and Organizational Culture: Scherr says Goldman has become more open through updated segment reporting, joint CEO/CFO earnings communication, investor day disclosures, and a stronger culture of engagement with stakeholders. Social Issues and Internal Dialogue: The firm used Zoom-era town halls to discuss racial equity, George Floyd, and related social issues, which Scherr says deepened internal awareness and made dialogue easier and more inclusive.

Key Arguments: Goldman entered 2020 with public medium-term objectives and, despite the pandemic, remains broadly on track or ahead on several of them. The firm’s reported 11.1% ROE would have been about 15% excluding sizable litigation expenses, above the 13% threshold. Expense efficiency, deposit growth, and funding optimization are progressing, though funding savings lagged early because deposit costs did not fall as quickly as Fed rates. Each major business performed well given the circumstances: investment banking rebounded, global markets benefitted from crisis-related client activity, asset management raised large third-party funds, and consumer/wealth management continued to build out. Goldman’s 2020 performance reflected structural improvements, not just a favorable market: higher wallet share, better client relationships, and improved capital deployment in global markets. The pandemic accelerated technology adoption, especially digital trading and remote work, while validating longer-term moves toward transaction banking and consumer financial products. Capital management is both defensive and offensive: maintaining buffers ensures the firm can serve clients quickly without breaching minimum capital requirements. The firm’s increased transparency has improved credibility with employees, shareholders, and investors without meaningfully harming competitiveness. The crisis confirmed Goldman’s core culture: stay calm, collaborate, and respond quickly while keeping the client at the center. 2021 is framed as a year of execution, not proclamation, with a return to more normal operating conditions hoped for but not assumed.

Data Points: ROE target: better than 13% - Investor Day medium-term goal through 2022 ROTE target: better than 14% - Investor Day medium-term goal through 2022 Reported 2020 ROE: 11.1% - Full-year reported return on equity Adjusted ROE excluding litigation: about 15% - Scherr’s estimate excluding sizable litigation expenses Annual expense efficiencies target: $1.3 billion - Expected annual run-rate savings by 2022 and beyond Progress toward expense efficiency target: about 50% achieved by 2020 - Scherr’s mark-to-market update Deposit target: $100 billion - Funding optimization goal by 2022 Deposit progress: $70 billion by 2020 - Progress toward deposit target Funding optimization savings target: $1 billion - Planned revenue enhancement from lower funding costs Fed funds rate decline: about 150 basis points or more - Explains why deposit-related savings lagged in 2020 Retail deposit cost: about 50 basis points - Current level cited by Scherr after declines Firm revenue growth: up 22% - 2020 firmwide revenue performance Global markets wallet share increase: about 120 basis points - Structural improvement cited as evidence of sustainability Top-client ranking progress: from about 51 to mid-60s - Number of top 100 global markets clients where Goldman views itself as number three Asset management fund raising: about $40 billion - Raised in new third-party funds during 2020 New transactions banking clients: 200 plus clients - Scale of the transactions banking platform Consumer platform scale: millions of customers - Growth of the consumer business platform Employee count referenced: 40,000 employees - Remote-work and operational continuity discussion CCAR result: surprising and surprising to the high side - Scherr’s description of 2020 capital stress-test results Interview/recording date: Wednesday, January 20, 2021 - Podcast recording notice Publication date reference: Friday, January 22nd - Episode intro timing

Pivotal Quotes: "there's not one day when the P&L showed up late. There wasn't one day when risk reports weren't presented on time and accurate." — Stephen Scherr: Describing the firm’s operational discipline during remote work and crisis conditions "what's sustainable is what we're in control of. And what is in question is what the market presents." — Stephen Scherr: Explaining which 2020 gains may persist versus which depend on the broader environment "2021 is going to be a year of execution more than it is kind of a year of proclamation." — Stephen Scherr: Framing the firm’s priorities for the year ahead

Implications: Goldman is emerging from 2020 with stronger digital capabilities, a more transparent investor story, and a more scalable business mix. For the industry, the episode signals that crisis-era gains may stick where firms improved client share, capital efficiency, and tech adoption.