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Morgan Stanley’s Betsy Graseck believes Goldman Sachs needs to get its return on equity (ROE) up if it wants to see its stock rally. One way they could do this is by ramping up risk in its investment portfolios. If not, she offers another alternative:The biggest debate in GS stock is whether GS can drive ROEs beyond currently generated single digits to mid-teen returns. We think ROEs will move up towards 12% whether or not the risk-on trade comes back. Why? If this risk off trade lasts for a multi-year period, we expect GS will cut back on investment spend and headcount.
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