Goldman Sachs explores ‘strategic alternatives’ for consumer business

Goldman Sachs’ chief executive David Solomon has said the bank is exploring “strategic alternatives” for its consumer platforms business, which could include the sale of its credit card partnerships with Apple and GM, or GreenSky, the point-of-sale lender it acquired in 2022.

At an investor day on Tuesday, Solomon pledged to reverse losses at its consumer lending and financial technology division by 2025 while considering alternatives for parts of the business, including a sale or a restructuring. The newly created division, called Platform Solutions, has made more than $3bn in pre-tax losses since 2020.

The decision to explore alternatives for the division amounts to the starkest admission so far that Goldman has stumbled in its attempt to build a consumer business, an effort that began under former chief executive Lloyd Blankfein before being fully embraced by Solomon.

Solomon is trying to convince shareholders to look past staff anger over a recent round of cuts, as well as the bank’s costly bet on consumer banking, and to embrace his moves to increase exposure to less volatile businesses.

“It became clear that we lacked certain competitive advantages and that we did too much too quickly, which affected our execution,” Solomon said of the consumer business in a presentation at the bank’s Manhattan headquarters.

Goldman shares were down about 2.5 per cent in morning trading in New York, a steeper drop than the broader market.

Since taking over as chief executive in 2018, Solomon has increased Goldman’s market share in trading and dealmaking. But he has been less successful in his efforts to build up businesses that generate the kind of stable returns that are valued by shareholders, such as asset and wealth management. 

Investors had started to question the strategy after a steep fall in fourth-quarter profits highlighted the gap to rival Morgan Stanley, which was buoyed by its own booming wealth unit.

However, on Tuesday, Solomon reaffirmed ambitions to expand in asset and wealth management, urged shareholders to look at results over a three-year period rather than disappointing financial numbers in 2022 and laid out a timeline to sell the bank’s volatile investments made with its own capital.

Solomon’s pitch for a more durable Goldman is threefold: to operate more efficiently, to win market share in investment banking and trading and to expand in asset and wealth management to generate the stable fees that are highly prized by investors.

The pitch is similar to the one laid out in 2020 at the bank’s first investor day, though now missing is an emphasis on consumer banking. Goldman last year decided to pare back its “Main Street” ambitions through its Marcus brand following shareholder unease over escalating losses.

A shrunken version of the Marcus business, for which Goldman is not exploring strategic alternatives, now sits within the wealth management unit.

Solomon stuck with a target for return on average tangible common equity — a measure of profitability — of 15 to 17 per cent. This was up from a previous target of more than 14 per cent, but still below longtime rivals Morgan Stanley and JPMorgan Chase, which command higher stock market multiples than Goldman.

Goldman is sticking to its earlier goals to boost its management fee income to $10bn by 2024 while raising $225bn in new money for its alternatives funds.

The bank gave more detail about its plans to sell most of its so-called on-balance sheet investments, a remnant of the era when the bank would wager its own capital in areas such as private equity and real estate.

It aims to reduce its $30bn of legacy investments to under $15bn by the end of 2024 and sell them all in the next three to five years. The plan is to replace earnings from these assets over time by generating management and performance fees from investing third-party funds.