Just as we were recovering from the after-effects of the pandemic, recession has hit the business world and companies are seeking ways to combat it. The banking industry is no exception to this change
David Solomon, CEO Goldman Sachs Group Inc. explained to Investors that the bank is looking for strategic alternatives for its consumer business after losing billions of dollars.
According to Analysts, Goldman could sell a portfolio worth $4.5 billion that is part of its digital bank called Marcus. After moving away from wall-street, the Company had already stopped unsecured lending.
Marcus bank’s consumer business was shifted into the asset and wealth management sector last year. The bank purchased Greensky for $2.2 billion in 2021, it’s a solution platform that consists of transaction banking, credit cards, and a fintech unit.
Solomon’s comments were reiterated by President John Waldron and the Global Head of Platforms Solutions Stephanie Cohen, indicating the bank’s retreat from its consumer business.
Kenneth Leon, Research Director at CFRA Research wrote in a note, “We would like to see the sale or de-risking of the card and merchant point-of-sale units to a new buyer or majority-controlled partner.” While the credit card business is being examined by regulators, the consumer business upheld by Solomon lost $3 billion in close to three years.
Considering the expectations of analysts, Marcus’ fourth-quarter earnings were also inadequate. David Fanger, an analyst at Moody’s Investors Service said “It makes sense that they would want to investigate all alternatives given the near-term drag on profitability these businesses are creating for the firm.”
To drive better performance from its fintech unit, the bank aims to grow fees from assets and wealth management along with taking more market share in its forte of trading and investment banking. “Sometimes we fall short and Sometimes we don’t execute. But we always learn and adapt,” Solomon told investors at the company’s New York headquarters.
The Downfall of Shares
Goldman Sachs shares fell 3.8% on Tuesday. According to some analysts, this is due to a lack of clarity on the bank’s vision concerning consumer business.
Goldman Sachs cut down 3,200 jobs this year, not filling vacancies after employees left, and aiming to focus on strategic hires instead, said its finance chief Denis Coleman. Reduced payroll of $600 million is expected.
Co-head of global banking and markets Dan Dees said that the division was prioritizing financing across equities, fixed income, currency, and commodities while targeting returns in the mid-teens. In 2022, the share of financing had already grown to 22% of the revenue compared to 13% in 2013.
Looking into the Future
Looking forward, Solomon said there was a slight improvement in the market sentiment, But clients were still worried about constant inflation pressuring the economy. There may be an improvement in the capital markets, but there are also plenty of risks to be wary of, he explained.
While the news is grabbing headlines, Goldman Sachs hasn’t made it clear when it expects to complete its review of alternatives for the consumer business.