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Anna Karamazina

26.11.2022 15:00

After a consumer failure, Goldman Sachs considers its deal choices

David Solomon, the chief executive officer of Goldman Sachs Group Inc. (GS.N), has informed investors that the bank is evaluating "strategic alternatives" for its consumer division, increasing the possibility of a sale after the unit lost billions of dollars.

During the bank's second investor day in its 154-year existence, Solomon delivered his comments.

Analysts predicted that Goldman might sell a $4.5 billion loan portfolio that was a component of its Marcus digital bank. When it moved away from Main Street, the firm had already stopped lending to unsecured borrowers.

Last year, Marcus was included into the business's newly combined asset and wealth management division. Transaction banking, credit cards, and a fintech company that GreenSky bought in 2021 for $2.2 billion are all housed in the newly established Platform Solutions section.

Kenneth Leon, research director at CFRA Research, stated 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."

Regulators are looking into the consumer company that Solomon promoted, which lost $3 billion in roughly three years. Marcus's problems also affected the fourth quarter's profitability, which were much below analyst forecasts.

Given the short-term impact on profitability these operations are causing for the company, it seems natural that they would want to look into all of their options, according to David Fanger, an analyst at Moody's Investors Service.

Solomon's remarks on the bank's consumer business, which signaled a further retreat from its Main Street objectives, were repeated by company president John Waldron and Stephanie Cohen, worldwide head of the Platform Solutions division.

Cohen claimed that despite losing $3 billion in little over three years, Platform Solutions will become profitable on a pre-tax basis by 2025.

The bank's objectives are to increase revenues from asset and wealth management, improve performance in its fintech division, and gain market share in its long-standing powerhouses of trading and investment banking.

Solomon said to investors at the business' New York headquarters, "Sometimes we fall short. Sometimes we don't execute. But we always learn and adapt."


Recently, Goldman's shares have dropped 3.8%, behind competitors. The vagueness of the bank's intentions for the consumer sector was criticized by several experts.

According to Goldman's finance boss Denis Coleman, the company has ceased replacing open positions when people depart and has instead chosen to concentrate on strategic recruitment after eliminating 3,200 jobs this year. These actions should result in a $600 million payroll expense reduction.

The business is aiming for returns in the mid-teens, according to Dan Dees, co-head of global banking and markets, and financing across stocks, fixed income, currency, and commodities is given priority. From 12% of sales in 2013, the finance portion had already increased to 22% of revenue the previous year.

Also, the bank intends to reduce several alternative investments that decreased earnings last year.

Goldman reiterated its longer-term objective of 15% to 17% return on tangible equity "through the cycle" and stated that it had "significant" potential to increase market share for wealth management in the US and internationally.

However, Solomon cautioned in an interview with CNBC that doing business in China will become more difficult over the next few years but said that the bank would still provide services to its customers there.

Solomon said that it was a more "cautious" moment to invest in the own franchise.

Going forward, Solomon saw a small improvement in market mood, but that customers were still worried about the economy being burdened by continuing inflation. The forecast for the capital markets may improve in the second half of the year, but there are many concerns, he warned.

When exactly Goldman plans to wrap up its analysis of available alternatives for the consumer division is unknown.

Carey Halio, the company's chief strategy officer, told Reuters in an interview that there were a lot of questions about it in the room and that she knows people are paying attention to it and are interested in the next stages. "We can't give any timeframe at this point, but obviously as soon as we have more information to share, we will."


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