Goldman Sachs has said it is pulling back from its much-vaunted foray into retail banking to focus more on its traditional strengths serving large corporations and wealthy investors as part of a major reorganization under the chief executive. David Solomon.
Solomon said the Wall Street powerhouse was trying to align its online retail banking operations with its wealth management business, adding that it was “a better place for us to focus than to massively seek out consumers.”
“The concept of being really broad with a consumer footprint doesn’t really play to our strengths,” he told CNBC. “But when you look at our wealth platform. . . the ability to add banking to it and bring it in line with that actually plays our strength.
Goldman announced its restructuring by reporting net income of $3.1 billion, or $8.25 per share, down 43% from $5.4 billion, or $14.93 per share, there one year old. That beat analysts’ estimates for $2.9 billion, or $7.75 per share, according to consensus data compiled by Bloomberg, but it was still Goldman’s fourth straight quarterly decline.
As part of the overhaul, Goldman will consolidate its trading and investment banking businesses into a single unit, as it goes from four divisions to three. The plan was announced as the Wall Street bank faces a prolonged downturn in investment banking fees.
“These organizational changes represent a significant and purposeful shift in our strategic journey, positioning us well to deliver to our customers and unlock value for shareholders,” Solomon said in a memo to employees that was seen by the Financial Times.
This decision reflects the reality that Solomon has not yet convince investors that Goldman has changed dramatically from the investment bank and trading house it inherited four years ago, and deserves a higher market multiple.
The reorganization, the bank’s second in less than three years, will split Goldman’s consumer business into two distinct areas, reducing the importance of its push into retail banking through online retail lender Marcus. Since its launch in 2016, Marcus has come under intense scrutiny from investors and internally after years of losses and rising costs.
The three divisions will be: a merged investment banking and business unit; an asset and wealth management division that will house Marcus; and the new Platform Solutions business comprising the rest of Goldman’s retail banking operations, such as its Apple credit card partnership and online lender GreenSky, as well as the nascent transaction banking business.
Goldman shares rose more than 4% in morning trading in New York.
In the third quarter, Goldman’s net revenue totaled $11.98 billion, up from $13.6 billion a year earlier, but ahead of analysts’ forecasts of $11.4 billion. Revenue from its trading division, which has benefited from strong activity during recent market volatility, beat analysts’ estimates.