Goldman Sachs explores ‘strategic alternatives’ for consumer units

Goldman Sachs’ chief executive David Solomon said the bank was 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 stop losses at its consumer lending and financial technology division by 2025 while also 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.

Solomon was trying to convince shareholders to look past staff anger over sweeping cuts, and the costly bet on consumer banking, and to trust in his push 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 in a presentation at the bank’s Manhattan headquarters.

Goldman shares were down about 1.8 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 around escalating losses.

A diminished 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 key measure of profitability — of 15 to 17 per cent. This was up from a previous target of more than 14 per cent, but still lagging behind longtime rivals Morgan Stanley and JPMorgan Chase, which at present command higher stock market multiples than Goldman.

Goldman maintained a $225bn gross fundraising target for its alternatives in asset management by 2024, as well as goals to earn company-wide management and other fees of more than $10bn.

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 less than $15bn by the end of 2024 and sell them all in the next three to five years. The plan is to replace these earnings over time with management and performance fees from investing third-party funds.