Goldman Sachs’ chief David Solomon admitted mistakes in an ill-fated foray into consumer banking and raised the prospect of selling parts of the business at an investor day that failed to lift the cloud over the Wall Street institution.
Solomon told shareholders on Tuesday he was exploring “strategic alternatives” for Goldman’s consumer platforms division, including a potential sale of its credit card partnerships with Apple and General Motors, or GreenSky, a lender it acquired last year.
A sale would amount to the starkest admission so far that Goldman has stumbled in its attempt to build a consumer business, an effort that began under former chief executive Lloyd Blankfein before being fully embraced by Solomon.
“It became clear that we lacked certain competitive advantages and that we did too much too quickly, which affected our execution,” Solomon said of the consumer business during a presentation at the bank’s Manhattan headquarters.
Investors reacted negatively, shaving 3 per cent off the bank’s stock price after the presentation and knocking more than $3bn from its market valuation.
The investor day came at a difficult juncture for Solomon, who has been battling investor doubts over the bank’s strategy as well as internal dissent over a recent round of job cuts.
Solomon pledged to reverse losses at the consumer lending and financial technology division by 2025. The business has incurred more than $3bn in pre-tax losses since 2020.
Since taking over as chief executive in 2018, Solomon has increased Goldman’s market share in trading and dealmaking. But he has been less successful in his efforts to build up businesses that generate the kind of stable returns valued by shareholders, such as asset and wealth management.
A steep fall in fourth-quarter profits highlighted the gap to rival Morgan Stanley, which was boosted by its own booming wealth unit.
Solomon pledged that Goldman would operate more efficiently, win market share in investment banking and trading, and expand in asset and wealth management to generate more stable fees.
The pitch is similar to the one laid out in 2020 at the bank’s first investor day, though without the emphasis on consumer banking. Goldman last year decided to pare back its “Main Street” ambitions through its Marcus brand following shareholder unease over escalating losses.
A shrunken version of the Marcus business, which is unaffected by the strategic review, now sits within the wealth management unit.
Solomon stuck with a target for return on average tangible common equity — a measure of profitability — of 15-17 per cent. This was up from a previous target of more than 14 per cent, but still below longtime rivals Morgan Stanley and JPMorgan Chase, which command higher stock market multiples.
Goldman said it planned to cut $1bn in expenses, partly through job reductions, filling fewer job vacancies and reduced spending on marketing.
The bank gave more detail about its plans to sell most of its so-called on-balance sheet investments, a remnant of the era when the bank would wager its own capital in areas such as private equity and real estate.
It aims to reduce its $30bn of legacy investments to less than $15bn by the end of 2024 and sell them all in the next three to five years. The plan is to replace earnings from these assets over time by generating management and performance fees from investing third-party funds.