Solomon reaffirms bank’s wealth management expansion plans during investor day presentation
David Solomon, the chief of Goldman Sachs, admitted to mistakes in a disastrous foray into consumer banks and suggested that parts of the business might be sold at an investor day. This did not lift the shadow over the Wall Street institution.
Solomon stated Tuesday to shareholders that he was looking at “strategic options” for Goldman’s consumer platforms division. This includes a possible sale of its credit cards partnerships with Apple and General Motors or GreenSky (a lender it acquired last January).
A sale would be the most stark admission that Goldman has failed to build a consumer-oriented business. This effort began under Lloyd Blankfein, before Solomon fully supported it.
Solomon spoke out about the bank’s consumer business at its Manhattan headquarters during a presentation.
Investors responded negatively to the presentation, slashing 3 percent off the stock price of the bank and reducing its market value by more than $3bn.
Solomon was facing difficult times as he battled internal and investor doubts about the bank’s strategy, as well as internal discord over recent job cuts.
Solomon promised to reverse the losses in the financial technology and consumer lending divisions by 2025. Since 2020, the business has suffered more than $3bn of pre-tax losses.
Solomon was appointed chief executive in 2018 and has seen a significant increase in Goldman’s trading and dealmaking market share. He has not been as successful in building businesses that provide stable returns for shareholders like asset and wealth management.
The sharp fall in fourth quarter profits was a sign of the gap to Morgan Stanley, which was supported by its wealth unit.
Solomon promised that Goldman would be more efficient, gain market share in trading and investment banking, and expand its asset and wealth management capabilities to generate stable fees.
This pitch is very similar to that presented at 2020’s bank’s first investor conference, but without the emphasis on consumer banking. Goldman decided last year to reduce its “Main Street” ambitions via its Marcus brand, following concern from shareholders about escalating losses.
The wealth management unit now houses a shrunken version the Marcus business. It is not affected by the strategic review.
Solomon remained with a target of 15%-17% for the return on average tangible equity, a measure that measures profitability. Although this was a higher target than the previous one of over 14 percent, it is still lower than long-standing rivals Morgan Stanley or JPMorgan Chase which have higher stock market multiples.
Goldman stated that it would cut $1bn in expenses. This was partly due to job cuts, fewer job vacancies, and reduced marketing spending.
The bank provided more details about plans to sell the majority of its so-called “on-balance sheet” investments. This is a remnant from the days when the bank would gamble its capital in areas like private equity and real property.
It plans to reduce its legacy investments of $30bn to less than $15bn by 2024, and then to sell all of them within the next three to five year. It plans to replace the earnings from these assets by generating management fees and performance fees through third-party funds.