David Solomon, Goldman Sachs, at the Marcus event
Goldman Sachs CEO David Solomon holds his ambition to make the 153-year-old investment bank a major player in US consumer banking.
Following product delays, employee turnover, brand confusion, regulatory missteps and mounting financial losses, Solomon said on Tuesday the company was diverging from its previous strategy of building a full digital bank.
Now, instead of “acquiring customers on a large scale” for the company, Goldman will instead focus on the Marcus customers it already has as it strives to bring fintech products to market through the workplace- and asset management channels of the bank, Solomon said.
The moment is a humbling moment for Solomon, who seized the opportunities within the emerging consumer business after becoming CEO four years ago.
Goldman started Marcus in 2016, named after one of the bank’s co-founders, to diversify revenues away from the bank’s main trading and advisory activities. Major retail banks, including JPMorgan Chase and Bank of America, enjoy higher valuations than Wall Street-focused Goldman.
Instead, after announcing the strategic shift and his third corporate reorganization as CEO, Solomon was forced to admit mistakes on Tuesday during a more than an hour-long conference call as analysts peppered him with critical questions one after another.
It started with autonomous analyst Christian Bolu pointing out that other new entrants, including fintech startup Chime and Block’s Cash app, have broken through, while Goldman has not.
“You could argue that there have been some execution challenges for Goldman at the consumer level; you’ve had multiple leadership changes,” Bolu said. “Looking back in time, what lessons have you learned?”
Another analyst, Brennan Hawken of UBS, told Solomon he was confused about the pivot due to past promises regarding upcoming products.
“To be honest, when I speak to a lot of investors at Goldman Sachs, very few are excited about the consumer business,” Hawken said. “So I wouldn’t necessarily say pulling back in the ambitions would necessarily be negative, I just want to try and understand strategically what the new direction is.”
After Mike Mayo of Wells Fargo asked if the consumer company was making money and how it stacked up against management’s expectations, Solomon admitted that the unit “isn’t making money at the moment.” That’s despite the fact that in 2020 it was said to break even in 2022.
Problems with Apple
Even one of the bank’s successes — winning the Apple Card account in 2019 — proved less profitable than Goldman executives expected.
Apple customers didn’t have the level of balances the bank had modeled for, meaning it brought in less revenue from the partnership than they intended, Solomon told Morgan Stanley analyst Betsy Graseck. The two sides recently renegotiated the business agreement to make it fairer and extended it until the end of the decade, the CEO said.
With his inventory under pressure and money-losing consumer businesses increasingly blamed, both internally and externally, for the impediment to business, Solomon seemed to have little choice but to change course.
Selling asset management services to clients lowers client acquisition costs, Solomon noted. In that way, Goldman reflects the broader shift in fintech that took place earlier this year amid falling valuations, as growth at any price turned into an emphasis on profitability.
Despite the turbulence, Goldman’s consumer banking adventure has managed to collect $110 billion in deposits, make $19 billion in loans and find more than 15 million customers.
“There is no doubt that the ambitions have probably broadened and communicated in a way than we are now opting for,” Solomon told analysts. “We make it clear that we are now withdrawing something from that.”