David Solomon, CEO of Goldman Sachs, said the bank is exploring “strategic alternatives” to its consumer platform business, including selling its credit card partnerships with Apple and GM, or GreenSky, the lender that will close it in 2022.
At an investor day on Tuesday, Solomon pledged to halt losses at his consumer credit and financial technology division by 2025, while also considering alternatives for parts of the company, including a sale or restructuring. The newly created division, called Platform Solutions, has accumulated more than $3 billion in pre-tax losses since 2020.
Solomon tried to convince shareholders to look past staff anger at sweeping budget cuts and the expensive gamble on consumer banking, and rely on his drive to increase exposure to less volatile companies.
“It became clear that we were missing certain competitive advantages and that we were doing too much and too quickly, which affected our execution,” Solomon said during a presentation at the bank’s Manhattan headquarters.
Goldman shares fell about 1.8 percent in morning trading in New York, a sharper drop than the broader market.
Since becoming CEO in 2018, Solomon has increased Goldman’s market share in trading and dealmaking. But he’s been less successful in trying to build businesses that generate the kind of steady returns that are valued by shareholders, such as wealth and wealth management.
Investors began questioning the strategy after a sharp drop in earnings in the fourth quarter exposed the gap with rival Morgan Stanley, which was backed by its own thriving asset unit.
On Tuesday, however, Solomon reaffirmed ambitions to expand in wealth and wealth management, urged shareholders to look at three-year results rather than disappointing 2022 financials, and set a timeline to sell the bank’s volatile investments with its equity. capital.
Solomon’s pitch for a more sustainable Goldman is three-pronged: operating more efficiently, gaining market share in investment banking and trading, and expanding in wealth and asset management to generate the stable fees highly valued by investors.
The pitch is similar to that of 2020 on the bank’s first investor day, but now it lacks an emphasis on consumer banking. Goldman decided last year to scale back its “Main Street” ambitions through its Marcus brand after shareholders worried about escalating losses.
A slimmed-down version of the Marcus business, for which Goldman is not exploring strategic alternatives, now sits within the asset management department.
Solomon maintained a target for return on average tangible common equity—a key measure of profitability—of 15 to 17 percent. This was higher than a previous target of more than 14 percent, but still fell short of longtime rivals Morgan Stanley and JPMorgan Chase, which currently command higher market multiples than Goldman.
Goldman maintained a gross fundraising target of $225 billion for its asset management alternatives by 2024, as well as goals to earn company-wide management and other fees of more than $10 billion.
The bank provided more details about its plans to sell most of its so-called on-balance sheet investments, a holdover from the era when the bank would deploy its own capital in areas such as private equity and real estate.
It aims to reduce its $30 billion in legacy investments to less than $15 billion by the end of 2024 and sell them all in the next three to five years. The plan is to replace this income over time with management and performance fees from investments in third-party funds.