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Goldman Sachs mulls ‘strategic alternatives’ for consumer business after missteps

Reuters

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Goldman Sachs mulls ‘strategic alternatives’ for consumer business after missteps

INVESTOR DAY. Goldman Sachs CEO David Solomon speaks during the Goldman Sachs Investor Day at the bank's headquarters in New York City, February 28, 2023.

Brendan McDermid/Reuters

Observers will focus on the plans of Goldman Sachs CEO David Solomon to decrease reliance on trading and investment banking, which can be whipsawed by market volatility

NEW YORK, USA – Goldman Sachs Group’s chief executive David Solomon said the company 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 try to make profits from a newly created fintech unit as it laid out its priorities at the start of its second investor day.

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.

Shareholders are awaiting more detail about its plans for Platform Solutions, formed after Goldman lost billions on its foray into consumer banking and reined in its ambitions. The pullback on costs could help the bank to meet its efficiency targets.

“Sometimes we fall short. Sometimes we don’t execute. But we always learn and adapt,” Solomon told investors.

Solomon’s performance and his plans for growth will also be scrutinized by investors and analysts.

Observers will focus on his plans to decrease Goldman’s reliance on trading and investment banking, which can be whipsawed by market volatility.

The bank has said it 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,” the bank said.

Goldman shares fell 1.81% in early trade on Tuesday, February 28, trailing rival big US banks.

Uncertain environment

“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, 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 US earlier this year. – Rappler.com

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