Goldman Sachs mulls 'strategic alternative' for consumer business after missteps
3 min read 28 Feb 2023, 10:49 PM ISTThe bank will aim to grow fees from asset and wealth management and drive better performance in its fintech unit, executives said at the company's second investor day in its 154-year history
PremiumGoldman Sachs Group Inc's Chief Executive David Solomon said the bank is considering "strategic alternatives" for its consumer business after stumbles led to billions of dollars in losses.
Solomon did not specify what those options would be. Goldman has already halted unsecured lending, a portfolio that could be sold. Its Marcus consumer business was folded into the company's merged asset and wealth management arm last year, and its newly-formed Platform Solutions unit houses transaction banking, credit cards and a fintech platform, GreenSky.
Solomon's comments, which were reiterated by company president John Waldron and Stephanie Cohen, global head of Platform Solutions, signal a further retreat from its Main Street ambitions.
The bank will aim to grow fees from asset and wealth management and drive better performance in its fintech unit, executives said at the company's second investor day in its 154-year history.
"Sometimes we fall short," Solomon told investors at the company's New York headquarters. "Sometimes we don't execute. But we always learn and adapt."
The CEO's performance and his plans for growth will also be scrutinized by investors and analysts.
"Goldman is realizing that it lacks the potential to reach scale in some parts of its consumer strategy and therefore the clock either has or could run out," said Mark Narron, an analyst at Fitch Ratings. "Although it’s unclear which specific assets could be targeted for divestiture, the leading consumer lenders or card issuers would be the obvious potential buyers," he said.
Cohen said she expected the Platform Solutions business to break even on a pre-tax basis by 2025 after it lost $3 billion in nearly three years.
After cutting 3,200 jobs this year, Goldman has stopped filling vacancies as employees leave, focusing instead on strategic hires, its finance chief Denis Coleman said. Those measures should reduce payroll costs by $600 million.
Dan Dees, co-head of global banking and markets, said the division was targeting returns in the mid-teens. One of its key priorities is financing across equities, fixed income, currency and commodities. The share of the financing has already grown to 22% of revenue last year from 12% in 2013.
"This is a business that is winning," said Dees. "We have room to grow" the division, which accounted for 69% of the company's revenue last year.
The bank also plans to slim down some alternative investments that weighed on profits last year.
"We will identify a $30 billion historical principal investment portfolio earmarked for sell-down, and lay out a plan to reduce this portfolio to zero over the medium term," it said.
The bank restated a longer-term target for return on tangible equity of 15% to 17% "through the cycle" and said it had "significant" room to grow market share for wealth management in the United States and globally.
Goldman shares fell 2.1% on Tuesday, trailing rival big U.S. banks.
'SUBDUED' EARNINGS
"Earnings could continue to be subdued for the next year or more, as the economic environment remains uncertain, which should pressure investment banking and asset management revenue," Michael Wong, an analyst at Morningstar Inc, said before the event.
After a solid performance in recent years, Goldman's markets division could weaken in the short-to-medium term because "trading is a wild card," he said.
Solomon also warned in an interview with CNBC that operating in China will get tougher over the next couple of years, but added that the bank would continue to serve clients in the country.
"We are at a very tough place in bilateral relationship with China and my own view is it only gets tougher ... It is a more 'cautious' time for investment in our own franchise," Solomon said.
The relationship between the two largest global economies has worsened in recent months over Taiwan and the downing of a Chinese spy balloon that was found flying over the U.S. earlier this year.
This story has been published from a wire agency feed without modifications to the text.
