Marcus’ Goldman Sachs kingpin shows it’s hard to disrupt retail banking

David Solomon, Goldman Sachs, at the Marcus event

Goldman Sachs CEO David Solomon is stifling his ambition to make the 153-year-old investment bank a major player in consumer banking in the United States.

After product delays, executive turnover, brand image confusion, regulatory missteps and worsening financial losses, Solomon said on Tuesday the company is moving away from its previous strategy of building new businesses. a large-scale digital bank.

Now, rather than “seeking to acquire customers at scale” for the company, Goldman will instead focus on the Marcus customers it already has, while aiming to bring fintech products to market through venue management channels. work and wealth management of the bank, Solomon said.

The timing is humbling for Solomon, who seized the opportunities of the nascent consumer sector after becoming CEO four years ago.

Goldman launched Marcus in 2016, named after one of the bank’s co-founders, to help diversify its income away from the bank’s core trading and advisory business. Major retail banks, including JPMorgan Chase and Bank of America benefit from higher valuations than those of Goldman, centered on Wall Street.

Analyst Review

Instead, after revealing the strategic shift and his third corporate reorganization as CEO, Solomon was forced to admit missteps on Tuesday in a more than hour-long conference call as analysts , one after another, peppered it with critical questions.

It started with standalone analyst Christian Bolu, who pointed out that other new entrants, including fintech startup Chime and Block’s Cash App broke through while Goldman did not.

“You could say there have been execution challenges for Goldman in the consumer space; you’ve had several leadership changes,” Bolu said. “Over time, what lessons have you learned?

Another analyst, UBS’s Brennan Hawken, told Solomon he was confused about the pivot due to previous promises about upcoming products.

“To be honest, when I speak with many investors on Goldman Sachs, very few are enthusiastic about the consumer sector,” Hawken said. “So I wouldn’t necessarily say that a setback in aspirations would necessarily be negative, I just want to try to understand strategically what the new direction is.”

After Wells Fargo‘s Mike Mayo asked if the consumer business was making money and how it compared to management’s expectations, Solomon conceded that the unit “isn’t making any money at the moment”. And this, despite saying in 2020 that it would break even by 2022.

Problems with Apple

Even one of the bank’s successes — winning the Apple The card account in 2019 – turned out to be less profitable than expected by Goldman executives.

Apple customers didn’t have the level of balances the bank had modeled, meaning it made less revenue on the partnership than they had expected, Solomon told the analyst. Morgan Stanley, Betsy Graseck. The two sides recently renegotiated the trade arrangement to make it fairer and extended it until the end of the decade, according to the CEO.

With his stock under pressure and consumer operations losing money increasingly blamed, internally and externally, for their slowing operations, Solomon seemed to have no choice but to change course.

Selling services to wealth management clients reduces client acquisition costs, Solomon noted. In this way, Goldman mirrors the broader shift in fintech, which occurred earlier this year amid falling valuations as growth at all costs shifted to a focus on profitability.

Despite the turmoil, Goldman’s retail banking venture has managed to collect $110 billion in deposits, make $19 billion in loans and find more than 15 million customers.

“There’s no doubt that the aspirations probably had and were communicated in a way that was broader than what we now choose to go for,” Solomon told analysts. “We’re making it clear that we’re taking some of that out now.”

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