The Goldman Sachs Group, Inc. (NYSE:GS) is among the handful of bank stocks that Jim Cramer has repeatedly praised over the past couple of months. One aspect of the bank that has repeatedly caught his attention is the valuation. For instance, in May, Cramer called the multiple “ridiculously low” and then advised viewers “to hold on to that tiger” in July. With September carrying bad news for bank stock investors, Cramer wasn’t happy about The Goldman Sachs Group, Inc. (NYSE:GS) in his morning appearance on September 18th:
“But these were really some, the meetings were terrible. My charitable trust owns Goldman, and I was shocked. That Goldman fixed income was soft. I really was. Bank of America, I interviewed them a week before. I thought things were well. It turned out things were okay. All of the banks there have said to me, Jim, do not overreact. These are not things that are existential. David, I come back and say, if the numbers are going down, the stock’s going down. And that is, not what we want if you’re a shareholder. Now it’s pretty simple. Don’t tell me not to worry, that makes me worried.”
The bit that the CNBC TV host was shocked about was Goldman Sachs’ third quarter fixed income warning. On the 16th, CEO David Solomon warned that the bank’s fixed income was shaping up to be softer in the third quarter compared to previous quarters. Naturally, Goldman’s warning reminded Cramer of a similar warning issued by Bank of America Corporation (NYSE:BAC) earlier, where the bank’s CEO, Brian Moynihan, had warned that investment banking income would be soft due to a slowdown in fixed income trading.
For Goldman Sachs, investment banking and trading income performance is more important than for Bank of America due to its ill-fated foray and then withdrawal from consumer banking. Therefore, it was unsurprising that the shares closed 3.9% lower on the day of Solomon’s latest remarks. With consumer banking out of the picture, the performance of mergers and acquisitions and investment banking determines how well investors respond to the stock.
On this front, the impact of shutting down consumer banking is clear on Goldman’s return on tangible common equity (ROTCE). In the second quarter, the bank’s ROTCE sat at 16.2%, which marked significant improvements over 2025, 2024 and 2023’s 12.4%, 9.3% and 7.1%, respectively. The improvement came after the banking giant removed risky credit from its books. Additionally, with markets having returned to mergers and listing activity, the bank performed well when it came to investment banking fees in the second quarter. During the quarter, Goldman’s investment banking fee grew by 55% to sit at $3.4 billion. Global Banking and Markets, of which fixed income is a part of, grew by 53%. Naturally, Solomon’s remarks raised the bearish bank’s fears as they opened the possibility of broader economic conditions, such as interest rates and market swings, affecting Goldman’s otherwise strong recovery.
As for Bank of America, it has a more diversified business courtesy of a sizable presence in the consumer banking market which means that it is more dependent than Goldman on net interest income (NII) and also has a steady pool of funds in the form of deposits unavailable to traditional investment banks. However, at the same time, Bank of America is also more vulnerable to consumer spending shocks which affect its loan growth and credit card income. Not to mention, if money market fund yields rise, then BAC has to retain customers by reducing its spread through offering higher rates.
Valuation wise, Goldman Sachs trades at a forward P/E ratio of 12.8 which is higher than Bank of America’s 10.8. Similarly, short interest as a percentage of float is 2.4% which is higher than BAC 0%. Looking at hedge fund sentiment, 92 funds had disclosed a stake in Goldman Sachs in Q2 which was lower than the 111 for Bank of America.
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