Goldman must change after 'lost decade'

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Analyst Dick Bove says “transformational change” could be the remedy for Goldman Sachs after a “lost decade.”

Goldman Sachs has gone through a "lost decade" and needs to reconsider its strategy, one Wall Street analyst thinks.

"It is not difficult to understand what happened to Goldman Sachs in the past decade. The industry it services was dramatically restructured. The company was not," Dick Bove, vice president of equity research at Rafferty Capital Markets, wrote in a note to clients. "The company needs to rethink its strategy and consider transformational changes in every aspect of its operations."

Bove's report was titled "The Lost Decade," looking into the bank's struggle in a rapidly reforming financial services industry, in which he criticized Goldman Sachs ' leadership and executive pay structure.

Bove's comments follow a first-quarter earnings report from Goldman that topped expectations, but missed on revenue as income from trading businesses plummeted.

The bank did not respond to a request for comment on Bove's report.

Bove highlighted Goldman's performance compared to the S&P 500 since Dec. 29, 2006, and contrasted it against the pay of its CEO and COO — $265 million and $254 million, respectively. Over that time frame, top executives were paid more than a half-billion dollars, Bove noted, but Goldman underperformed an S&P 500 that gained more than 47 percent.

From the end of 2006 through Friday, Bove said Goldman's stock fell by 19.6 percent.

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"What management did not fathom was the better approach would have been a transformational change so that capital could be used in a more productive fashion than supporting businesses that were declining on a secular basis," like trading and investment banking, Bove wrote.

While Bove's criticism is harsh, it's worth noting that Goldman's performance over his "lost decade" is only middle-of-the road when compared to the other biggest banks in the U.S. Only JPMorgan Chase and Wells Fargo stock outperformed Goldman shares over the period Bove targets.

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It's notable that both JPMorgan Chase and Wells Fargo have strong consumer banking operations — a business Goldman recently invaded through the acquisition of GE Capital 's loan portfolio and its launch of an online consumer savings business . But that's not enough, Bove told

"All these initiatives are very small," Bove said. "What was needed was transformational change."

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