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Morningstar | The Market Isn't Giving Goldman Sachs much Credit for all of its Positive Initiatives.

Goldman Sachs is steadily making changes that may cause the market to revalue it higher. The company’s investment management business has become a priority in the past several years. Assets under supervision now exceed $1.5 trillion, while related investment management revenue has recently clocked in at around 20% of net revenue compared with 11%-12% before 2008. Investment management is a relatively stable, high-return-on-capital business that is well suited to the current regulatory environment.Retail and commercial banking with a twist has also emerged as an actual strategy following years of vacillating. Goldman had a rapid increase in deposits to $39 billion in 2009 from $15 billion in 2007, probably due to the view that the market wanted the company to have more steady deposit funding during the financial crisis, but then deposits decreased in 2010 and remained relatively flat at $46 billion in 2011. However, Goldman has recommitted to the banking effort with its push into digital lending and purchase of deposits from GE Capital. Loans receivable are now over $80 billion, with deposits exceeding $150 billion. Overall, we believe there’s strong synergy with lending to wealth management and corporate clients. That said, we believe the company doesn't have any sustainable competitive advantage with its digital banking push. High-growth digital banking and more-stable investment management and traditional banking could spur investors to look at Goldman Sachs in a more favorable light.With the more traditional investment banking business, it’s partly a game of attrition and looking for niches of incremental growth. Goldman Sachs is arguably the top global investment bank and can earn above its cost of capital in the new financial sector environment. Other investment banks that aren’t in as advantageous of a position are restructuring their operations, and Goldman can pick up any business up for grabs. Additionally, the company has a three-year plan for increasing net revenue by $5 billion, of which approximately 50% has already been achieved, which is focused on some of its newer business lines and customer segments that it hasn’t historically targeted.