It has been a rough year for Goldman Sachs. With the environment still difficult, big changes in leadership can’t be ruled out. Breakingviews envisions some of the possibilities in a hypothetical memo to shareholders that wouldn’t be surprising to see from Goldman during 2012.
2011 was a period of strong performance for Goldman Sachs in the context of a challenging year. Despite continuing uncertainty in the global economy and the continuing sovereign debt crisis in Europe, an unwavering focus on clients allowed us to generate net revenue of $40 billion, with net earnings of $8 billion.
That was on a par with the previous year at a time when many of our competitors have struggled. But the 46 percent decline in our share price is not what you have come to expect from us. We are changing our business and management in ways that we believe will create value for our shareholders.
Among these changes has been the separation of the chairman and chief executive roles. While joining the two positions made sense in the early years of our public market listing, the regulatory and political climate that has emerged since 2008 necessitates a new approach to managing your company.
The experience of E. Gerald Corrigan at the Federal Reserve positions him to lead our efforts in shaping and complying with the new framework of the global financial services business. Mr. Corrigan’s new role as chairman will give J. Michael Evans, our new chief executive, unprecedented freedom to focus on our operations, which are also undergoing transformation. As co-chairmen of our Business Standards Committee, which reported early in 2011, Mr. Evans and Mr. Corrigan are uniquely qualified to lead our fundamental recommitment to clients.
None of these important changes would have been possible without the support of Lloyd Blankfein, our former chairman and C.E.O., who is now chairman of Partners Capital L.P., the independent asset management and securities trading business we spun off this year to allow the remainder of our businesses to focus on our clients and the regulated functions of a bank holding company.
Being nimble is a very large part of our culture and our success story. Staying close to our clients and adapting our business and management to meet their evolving needs will remain a cornerstone of our long-term success.
3-D Printing Promise
The digital tidal wave upended the music, book, film and newspaper industries. The rise of new printing technology now threatens to wreak similar havoc on producers of three-dimensional objects. While this shift will take years, 2012 is shaping up as the year the technological hype hits the mainstream.
A 3-D printer takes digital blueprints or scans and recreates them one layer at a time. Layers of plastic, metal or other compounds are bonded together to produce an object. If a rare car breaks down in a remote area, for instance, a suitably equipped local workshop might be able to produce the needed part immediately from a downloaded file instead of waiting for it to be shipped.
So far, only a few materials can be used, the process can take a long time, and items need to be assembled afterward. But 3-D printing is already changing manufacturing around the edges. Additive manufacturing, as it’s formally known, is currently most widely used in making prototypes. Barclays estimates this and other specialized markets like dental fillings add up to about $2.5 billion a year at the moment.
As printers become cheaper, new materials become available and machines can handle more complex tasks, the impact will increase. Local manufacturing will cut down on time and shipping costs. Companies will need to hold less inventory. Customization — of orthopedic parts tailored from digital scans of patients, for example — will become far simpler. Manufacturers will be able to modify parts more easily, and pioneers will find new products that only printers can make.
But anything involving just a digital file and a readily available printer will encourage copying and piracy. The day may well come when teenagers can scan or download their friends’ designer sunglasses and print a copy.
Companies that produce 3-D printers, such as Stratasys and 3D Systems, offer immediate plays on the sector, and other producers are considering I.P.O.’s. Related companies, like the $8 billion design software firm Autodesk, may also benefit. The technology is developing rapidly. Opportunities will abound, but investors should beware hype in the coming year, and look out for disruption to traditional manufacturers over the next several.