Goldman Sachs (GS) investors could be in for some commotion on Wednesday, emanating from some of the most high-profile U.S. congressional representatives at present.
CEO David Solomon will be called before the House Financial Services Committee on Wednesday morning for a hearing entitled "Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 Years After the Financial Crisis" where he will look to defend his company's reforms and compliance with regulation.
The committee is chaired by California congresswoman Maxine Waters and includes high-profile Wall Street critics in Hawaii representative and presidential hopeful Tulsi Gabbard and New York representative Alexandria Ocasio-Cortez, so he is unlikely to receive a warm welcome.
While 2020 talking points are unlikely to disturb investors much, the threat of increased regulation or even a call to break up big banks from these legislators will remain a concern.
"While the Dodd-Frank Act and related reforms required additional capital and strengthened oversight of G-SIBs through the creation of the Consumer Bureau, there remain concerns regarding whether some of these institutions are adequately being held accountable for repeated consumer violations, and whether these firms may be too big to manage," committee chairwoman Waters said in a memo ahead of the meeting, hinting at this possibility.
For his part, Solomon apparently accepts many regulations as they currently stand such as Dodd-Frank and Basel liquidity requirements, which might be appreciated by the committee members questioning him.
He added that the company has undertaken steps even beyond the standard regulations in order to reduce complexity and maintain resiliency amid a potential crisis and protect best practices, which may stave off some of the heavier criticisms.
Nonetheless, shares of the big bank are lagging on Tuesday along with the broader market as many prepare for a noisy Wednesday hearing.
Scandal Overhang
Foremost among touchy topics likely to be brought up is the New York-based company's large scale 1MDB scandal in Malaysia, which has sullied the bank's reputation in recent years and embroiled it in a row of international litigation.
Goldman Sachs is accused by some of deep involvement in the 1MDB scandal, which resulted in the plundering of billions from Malaysia's sovereign wealth fund for the personal enrichment of the conspirators.
"It's very clear that the people of Malaysia were defrauded by many individuals including the highest members of the prior government. Tim Leissner was a partner at our firm by his own admission was one of those people," Solomon admitted in an earnings call in January. "Per Leissner's role in that fraud we apologize for the Malaysian people. As you would expect we have looked back and continue to look back to see if there is anything that we as a firm could have done better."
It would be unsurprising for representatives to instead suggest what regulations or oversight they could put in place to prevent such actions.
Solomon may again be somewhat insulated from the harshest criticism, as the scandal took place largely under the watch of his predecessor Lloyd Blankfein, which would likely prevent him from incurring the same wrath in store for Wells Fargo (WFC) CEO Tim Sloan.
In another contrast to Sloan, the Goldman chief put a strong focus on the company's efforts to encourage consumer banking and small business banking with its Marcus platform as well as its efforts to offer banking services to underserved communities.
As the Marcus platform is now backing Apple's (AAPL) new card and payment system, the ability to reach American consumers could certainly grow rapidly. The question of how lawmakers will react to such a powerful partnership will also be important to watch.
A deeper dive on this partnership and the implications of the consumer focus of the effort is upcoming.
To read Solomon's full prepared testimony, click here.
