A divorce with Apple, internal strife: How Goldman’s Main Street bet failed | Mint

A divorce with Apple, internal strife: How Goldman’s Main Street bet failed

Goldman Sachs chairman and CEO David Solomon has had doubts for many months about the firm’s foray into consumer lending. (Photo: Reuters)
Goldman Sachs chairman and CEO David Solomon has had doubts for many months about the firm’s foray into consumer lending. (Photo: Reuters)


The Wall Street firm was looking to get out of consumer lending, once a big area of expansion. But Apple dumped it first.

At an off-site in upstate New York last month, during a dinner lasting roughly three hours, Goldman Sachs Chief Executive David Solomon told partners that the firm had made some mistakes with consumer lending. But, he said, the business wasn’t as bad as they thought and they didn’t understand the details. He wouldn’t tolerate partners trash-talking Goldman’s decision to get into consumer lending, he told them.

Goldman has known for a while that consumer lending wasn’t really working out, and the bank has been looking for the exits. But it was Apple that sealed it. The tech giant recently sent a proposal to Goldman that would pull the plug on their credit-card partnership, the crown jewel of the business.

The split will effectively bring an end to Goldman’s once-grand plan to be a bank for the masses—an experiment it began about a decade ago as a way to build something different after the global financial crisis. But the old and new never fit together. Engineering hires wooed from Silicon Valley grumbled about a stuffy culture. Executives in trading and investment banking, Goldman’s traditional powerhouses, groused about the money-losing consumer endeavors.

In the fall of 2021, Goldman was forging ahead with plans to expand the consumer business. It was in the process of making a massive acquisition and was courting new credit-card partners. Solomon told deputies that if Goldman was going to be in the consumer business, it needed to go big.

Still, even Solomon began to think the business was weighing Goldman down, according to people familiar with the matter. Shares were around $400 at the time, already near their record high, but shareholders had expressed skepticism to Goldman about its consumer plans. Solomon told colleagues he thought the stock could go much higher if Goldman was to get an outside investor for the consumer business.

Goldman began talking to a private-equity firm, Silver Lake, to see whether it could spin the consumer business into a joint venture, according to people familiar with the matter. It called the plan Project Maryland, the “M" a reference to Marcus, the name for its consumer brand. Goldman code-named itself “Georgia," and Silver Lake was “South Carolina." The talks fell apart after the two sides couldn’t agree on how much control each would have over the new venture.

There were plenty of reasons for Goldman’s top brass to be on edge.

Goldman had agreed in 2021 to buy GreenSky, a lender that makes home-improvement loans, at a hefty price. Some executives had told Solomon that it wouldn’t be a good fit.

Solomon had also been pushing for Goldman to expand into checking accounts. After top executives in the consumer business urged him not to, saying the bank should stay focused on a small number of products, Solomon told them they had no vision, according to people familiar with the matter.

The Apple credit card went live in 2019 with great fanfare, promising cash rewards. The partnership had red flags from the outset.

Goldman badly wanted to get that deal, and that meant accepting a number of unusual terms from Apple. For example, Goldman agreed not to charge late fees or sell customer data, trading away two massive streams of income.

When Apple unveiled the credit card in 2019, it did so with a zinger. “Designed by Apple, not a bank," its ads chirped.

Goldman partners complained that the firm was throwing good money after bad. Soon, that wasn’t the only issue.

In 2022, the Federal Reserve found problems with the bank’s consumer business. It had concerns that Goldman didn’t have proper monitoring and control systems.

That same year, Goldman disclosed that the Consumer Financial Protection Bureau was investigating its credit-card practices, including how the bank resolved billing disputes and refunded cardholders. Those probes continue.

Employees in the consumer business were frustrated. They had been asking since at least 2019 for the bank to invest more money in the operations that handle customer complaints, according to people familiar with the matter.

Some also blamed Apple, at least privately, for the regulatory problems. Most card programs send out cardholders’ bills on a rolling basis throughout the month. Apple insisted that its cardholders get their bills at the beginning of each month. That means Goldman customer-service employees are flooded with complaints and requests during the first few days of every month, making it hard for them to keep up.

Adding to the tension: Investment banking fell off a cliff in 2022, both at Goldman and at rivals, hurt by rising interest rates and a big drop in stock prices. Goldman’s usual power brokers became more incensed that the bank was spending money on a consumer business they didn’t want. Later, Goldman would disclose that a big chunk of its consumer-lending operations had lost billions of dollars.

The internal noise to kill the consumer experiment grew. Solomon’s No. 2, bank president John Waldron, ordered a review of the entire consumer operation.

At a management-committee meeting last fall, Marc Nachmann, one of the most senior partners at Goldman, blasted another Goldman partner, Stephanie Cohen, about her business, according to people familiar with the matter. He told Cohen, who was co-leading the consumer push, that she wasn’t making sense, according to people who were present.

Some committee members looked on uncomfortably.

Cohen had been a star in Goldman’s investment bank, and Solomon had tapped her two years before to help run the consumer unit. She inherited a troubled business. At the management-committee meeting blowup, she had just returned from a personal leave.

There were other instances where Nachmann criticized Cohen’s business, people familiar with the matter said. Solomon at times spoke up in defense of the business.

While Cohen was away, Solomon and his deputies decided to reorganize the entire bank, including her domain. The bank announced in October 2022 that Cohen would be head of a new unit called Platform Solutions. That unit would include GreenSky and the bank’s two credit-card partnerships—the one with Apple and another with General Motors.

The deposits—arguably the most enviable part of the consumer franchise—would move to another new unit called asset and wealth management, run by Nachmann.

What Goldman did made clear to the world: It announced, finally, that it was scaling back its Main Street ambitions.

The Waldron-ordered review had concluded that the consumer business couldn’t produce the returns that Goldman wanted within the near term, according to people familiar with the matter.

By early this year, Goldman executives began looking for ways out of the Apple partnership, and even approached American Express to gauge their interest. Still doubting, they forged ahead anyway with new Apple products. A savings account launched in the spring, as well as a buy now, pay later service.

One worst-case internal projection: The savings account would lose money for the next 10 years after operating expenses were factored in.

Now, the consumer unit is quickly disappearing piece by piece.

The checking accounts never materialized. The bank has stopped originating personal loans and sold off most of those balances. It is unloading GreenSky at a steep loss. In November, it informed employees that it will move to unload its credit-card partnership with GM.

Cohen went back on leave in June. Some employees who were once tasked with consumer lending have been moved to focus on fixing regulatory issues.

The bank for now is still responsible for the Apple card and the GM card, an arrangement that includes providing customer service. Goldman employees will also have to prepare for transferring balances to the company or companies that take over the cards, a process that needs employees with experience.

At a meeting last month, when the bank told employees it would be unloading the GM card, it offered them a sweetener to stay. Many will be eligible for pay equal to one year of their compensation if their jobs are eliminated. People familiar with the matter said the same will apply for employees who work on the Apple card.

As for Apple, it wants out within the next roughly 12 to 15 months.

Laura Cooper contributed to this article.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

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