Goldman Sachs Group Inc. (GS) CEO David Solomon has taken numerous steps since taking the helm in October to reposition the Wall Street bank for growth. But while Goldman's stock has risen about 25% this year, way ahead of the market, many skeptics are unpersuaded that Goldman's turnaround is sustainable. Despite recent gains, Goldman's shares have gone almost nowhere in the past four years as the broader market and several of its banking peers have advanced.

A Bearish Bove

Now, widely respected banking guru Dick Bove has joined the skeptics by lowering his rating from buy to hold on the bank, as outlined by Bloomberg. Bove says that Goldman, once regarded as Wall Street's premier firm, faces four major challenges that are - and will - hinder the bank's turnaround. These challenges are management turmoil at the top, the failure to adapt its core businesses to a changing marketplace, slowness in adapting digital technology, and an "elitist mentality" that's out of sync with today's financial markets. "The task is sizable and apparently it will take more time and more effort to put the company on a sounder course,” wrote Bove in a recent note. “I respect CEO David Solomon because he seems to clearly understand the problem that Goldman Sachs is in and he is moving aggressively to fix it.” 

The immediate challenge, Bove says, is the latest round of management turmoil at Goldman. A dozen partners have been in talks to depart the firm in the wake of new, internal reviews requiring executives to reach specific goals set by CEO Solomon, according to CNBC. Goldman partners take home at least $1 million in annual compensation. The number of departures is unusually large and could rise to an estimated 15% of Goldman's partners by yearend. The elimination of these positions signals “an unhealthy level of turmoil,” said Bove, per Bloomberg.

Meanwhile, Bove says Goldman's failure to adapt its core businesses and products has led to revenues that are below where they were a decade ago. The bank also has failed to adapt its businesses to the digital world, which he calls “Fourth Industrial Revolution." As a result, Goldman is digitally lagging in two of its three key businesses: trading and investment management. The bank also needs to plunge more aggressively into ETFs and sell more products that create a recurring revenue stream, the Odeon Capital analyst says.

What’s Next

The biggest challenge for Goldman may be cultural. Bove says the bank must shift from its old-school "elitist mentality,” which is characterized by its wealthy “partners,” and focus on what he calls a "workman mentality" by focusing on shareholders and employees.