Goldman Sachs CEO David Solomon Says Banking Giant Will Trim Emphasis on Consumer Checking Accounts & Credit Cards

Goldman Sachs CEO David Solomon Says Banking Giant Will Trim Emphasis on Consumer Checking Accounts & Credit Cards

By:  Serach Nissim

Goldman Sachs Group Inc has confessed that trying to be a bank to the masses didn’t work out.

As reported by the Wall Street Journal, last week during a meeting with investors and analysts, CEO David Solomon said that the banking giant would trim its emphasis on banking consumer checking accounts and credit cards.  Rather the bank will refocus on managing the wealth of large institutions and wealthy investors.  The company is confident that this business, with its steady hefty fees despite market fluctuation, will be a better fit for the company and assure growth.

The company, founded in 1869, is the second largest investment bank in the world when ranked by revenue.  Goldman’s forte has long been investment banking and trading.  In recent years, it had endeavored to become a friendly neighborhood bank.  That’s because these kind of banks, which just take deposits and lend in daily transactions, are considered stable stocks which investors love to buy and hold indefinitely.  Goldman struggled to succeed in this market though.  Its efforts in the credit-card business as well as the mass-market checking accounts never really took off.  In fact, Goldman posted hefty losses in relation to these new business operations.  Despite this defeat—its inability to compete as everyone’s bank—Goldman is now out to convince investors that it is a worthy banker to some– and has its own sources of steady revenue and growth.  Thus, it can still lure investors for its stock.  “Our asset and wealth management platform is the key driver for growth,” said Mr. Solomon, who took over as Chief executive in 2019.

The problem is that trading is susceptible to market fluctuations as are mergers and acquisitions, and their assets are higher risk.  As per the WSJ, Goldman’s return on equity, or how much profit it earned on its capital, fell from over 30 percent in 2007 to roughly 11 percent in 2012, 2013 and 2014.  That’s why it tried to become a bank to the masses.  In 2016, the company rolled out Marcus—an online bank and lending brand with credit cards, which it partnered on in a high-profile deal with Apple and General Motors. It also bought GreenSky, which specializes in making home improvement loans.  The company’s plan to offer basic checking accounts never actualized.    Now, Goldman has conceded that these efforts didn’t translate into higher returns or better valuation for the company stock.

Of course, Goldman is far from out of the picture.  Trading is coming back and Goldman is still at the forefront.  Also, it is able to offer its high-end consumers some of the best high-powered databases to analyze markets and manage risk like pros.  Goldman’s stock has crushed the S&P 500, as well as JPMorgan and Bank of America, since the beginning of 2020.  It still, however, lags behind Morgan Stanley.

Moving forward, Goldman’s focus for growth will be in its asset-and wealth-management business.  It is selling alternative assets, which are higher-risk and higher-reward principal investments such as stakes in private companies.  Obtaining these investments also bring in steady management fees and additionally will free up capital so the company can lend out more money and gain that stability.  As per the WSJ, last year Goldman’s asset-and-wealth unit raked in roughly $8.8 billion just in management fees. The company is hoping to lift this number to $10 billion.