Goldman Sachs faces reality of banking ambitions
The mass consumer market remains out of reach for Goldman Sachs despite a multiyear effort.
Why it matters: Wall Street's most prestigious bank had hoped to rely on fees from a broad base of customers to diversify away from its investment banking and trading business amid uncertain and rocky economic times.
Driving the news: Goldman today confirmed reports that it would step back from trying to build a full-scale digital bank with its Marcus brand.
- Today, the company also announced a firm-wide reorganization that will break apart its 6-year-old consumer banking unit and shuffle its components into two of three newly defined divisions — Asset and Wealth Management, Global Banking and Markets, and Platform Solutions.
Context: This is Goldman's third major organizational shake-up in four years under CEO David Solomon.
- It also marks a retreat from the company's ambitions to become a Main Street bank — "aspirations ... communicated in a way that [were] broader than we're now choosing to go," Solomon said today on an analyst call.
- Three years ago — three years into its consumer banking strategy — Solomon had told staff that he expected the company "to be a leader" in its consumer business, "just like we are in our institutional and corporate businesses."
- And though the company's deposit platform has grown to over $110 billion over the last six years, the consumer business doesn't make money.
What they're saying: Very few investors have been excited about Goldman's mass market ambitions, Brennan Hawken, senior equity research analyst at UBS, said on the call.
- "I wouldn't necessarily say that a pulling back in the aspirations would necessarily be negative," he said.
- "I appreciate the comments that shareholders haven't been excited about it and that certainly affects some of our decision making," Solomon replied.
The big picture: Goldman's investment banking and trading businesses are being combined at a time when markets have been volatile and deals have stalled.
- Solomon acknowledged that the two units are "core" to Goldman's identity, but said that was not always the case and that the company has to look for other business lines — particularly fintech.
What to watch: Goldman still plans to tap into the consumer market — but through its existing customer base.
- "We will focus on existing deposit customers and consumers that we already have access to through channels like workplace and personal wealth, rather than seeking to acquire customers on a mass scale," Solomon said.
The bottom line: Goldman Sachs is sticking with what it does best — catering to those with more money than most.