Goldman Sachs has revealed the details of its latest reorganization under CEO David Solomon, pulling out of its celebrated foray into retail banking to focus more on its traditional strengths serving large corporations and wealthy investors.
Solomon told CNBC on Tuesday that the Wall Street powerhouse was trying to align its online retail banking business with its wealth management business, saying it was “a better place for us to be focused than mass-market consumer searches.”
“The concept of being really broad with a consumer footprint doesn’t really play to our strengths. But if you look at our wealth platform. . . the ability to add and match banking services to that really plays into our strength,” he said.
Goldman announced its restructuring as it reported net income of $3.1 billion or $8.25 per share for the third quarter, down 43 percent from $5.4 billion or $14.93 per share. year ago. That beat analysts’ estimates at $2.9 billion, or $7.75 per share, according to consensus data compiled by Bloomberg, but was still Goldman’s fourth-quarter decline in a row.
Under the revamp, Goldman will collapse its trade and investment banking operations into one unit, while shrinking from four divisions to three. The plan was announced as the Wall Street bank faced a lengthy slowdown in investment banking fees.
“These organizational changes represent an important and purposeful evolution in our strategic journey, putting us well positioned to deliver for our customers and unlock shareholder value,” said Solomon in a memo to employees seen by the Financial Times.
The move reflects the reality that Solomon has yet to convince investors that Goldman has materially changed from the investment banking and trading house he inherited four years ago, and is earning a superior stock multiple.
The reorganization, the bank’s second in less than three years, will split Goldman’s consumer business into two separate areas, reducing the prominence of its push for consumer banking through online retail lender Marcus. Since its launch in 2016, Marcus has come under scrutiny from investors and internally after years of losses and escalating costs.
The three divisions will be: a merged investment bank and trading unit; a wealth and wealth management division that will house Marcus; and the newly formed Platform Solutions business that includes the rest of Goldman’s retail banking businesses, such as the Apple credit card partnership and online lender GreenSky, as well as fledgling transaction banking.
Goldman’s stock rose more than 4 percent in morning trading in New York.
In the third quarter, Goldman’s net income was $11.98 billion, down $13.6 billion a year earlier, but ahead of analysts’ forecasts of $11.4 billion. The trading division’s earnings, which have benefited from heavy activity during recent market volatility, have outperformed analysts’ estimates.