The article below is from our BRIEFINGS newsletter of 10 December 2020
On the heels of the firm’s annual conference, we caught up with Richard Ramsden, who leads the Financials Group within Goldman Sachs Research. Below, he discusses takeaways from his conversations with company management teams, including the outlook for capital returns and strategic investment.
What was the tone from participating companies regarding the recovery?
Richard Ramsden: It was generally positive among banks, asset managers and independent advisors, thanks to the monetary and fiscal intervention and the prospect of a vaccine on the horizon. By and large, the companies we spoke to viewed the outlook as improving, and we didn’t hear significant concerns about liquidity, credit, or the prospects for growth. That said, corporate confidence isn’t as strong as sentiment in the markets suggests, particularly among smaller firms. We heard some managements suggest further fiscal stimulus is needed to tide these small businesses and consumers over until a vaccine becomes widely available next year.
What does an improving outlook mean for capital returns? Do you expect to see those ramp up, and in what form—buybacks or dividends?
Richard Ramsden: Yes—we’re expecting capital returns to reaccelerate with the recovery, but this needs to be preceded by the Fed ending the buyback moratorium and dividend cap it imposed last summer. The fundamentals also look supportive of a reacceleration, once that happens: many of the large banks we spoke to at the conference reported capital well above their required buffers and a comfort with their dividend payout—if not a desire to go higher. It’s also worth mentioning a third outlet for excess capital that really grew in focus given the buyback and dividend restriction, as well as the more muted growth outlook, and that’s M&A. We’re still seeing interest here as a means for companies to deploy some of their excess capital, and in a way that supports their strategic growth priorities.
That’s a good segue into areas of investment. What are Financials investing more or less in as a result of the pandemic? How have their priorities shifted?
Richard Ramsden: The pandemic hasn’t changed strategic priorities so much as it has accelerated investment in trends that existed before the coronavirus hit. Most notably, the wave of digitization we’ve seen over the last few years has accelerated, especially in technologies like digital banking and cashless payments where there are non-financial players in the ring. So it wasn’t surprising that we heard a recurring focus from Financials on technology investment that can drive a wider competitive gap in the space. This should allow these companies to accelerate the rationalization of historical distribution channels, as most believe these trends will outlive the pandemic. And that’s a conclusion we’ve seen supported by other industries – once consumer behavior changes, it rarely changes back.