Goldman Sachs mulls deal options after consumer flop

(C) Reuters. FILE PHOTO: The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly/File Photo

By Saeed Azhar and Lananh Nguyen

NEW YORK (Reuters) – Goldman Sachs Group Inc (NYSE:GS)’s Chief Executive David Solomon said the bank 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.

Cohen said she expected the Platform Solutions business to break even on a pre-tax basis by 2025 after it lost $3 billion in nearly three years.

The bank will aim to grow fees from asset and wealth management and drive better performance in its fintech unit, executives said at the company’s second investor day in its 154-year history.

“Sometimes we fall short,” Solomon told investors at the company’s New York headquarters. “Sometimes we don’t execute. But we always learn and adapt.”

The consumer business that Solomon championed lost $3 billion in almost three years and its operations are being probed by regulators. Marcus’s woes also weighed on fourth-quarter earnings, which fell dramatically short of analyst expectations.

“Goldman is realizing that it lacks the potential to reach scale in some parts of its consumer strategy,” said Mark Narron, an analyst at Fitch Ratings. “Although it’s unclear which specific assets could be targeted for divestiture, the leading consumer lenders or card issuers would be the obvious potential buyers,” he said.

SHARES FALL

Goldman shares fell 2.75% on Tuesday, trailing rival big U.S. banks. Some analysts blamed the lack of clarity around plans for the consumer business.

“It is hard to say what these alternatives might be … I suspect they do not mean a sale so much as a way to continue to grow these businesses in a less capital-intensive manner,” said David Fanger, Senior Vice President, Financial Institutions Group at Moody’s.

After cutting 3,200 jobs this year, Goldman has stopped filling vacancies as employees leave, focusing instead on strategic hires, its finance chief Denis Coleman said. Those measures should reduce payroll costs by $600 million.

Dan Dees, co-head of global banking and markets, said the division was targeting returns in the mid-teens. One of its priorities is financing across equities, fixed income, currency and commodities. The share of the financing has already grown to 22% of revenue last year from 12% in 2013.

The bank also plans to slim down some alternative investments that weighed on profits last year.

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.

After a solid performance in recent years, Goldman’s markets division could weaken in the short-to-medium term because “trading is a wildcard,” he said.

Separately, 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.

“It is a more ‘cautious’ time for investment in our own franchise,” Solomon said.