Luc Olinga - Yesterday
The prestigious investment bank seems to be giving up on its ambitions to seduce Main Street.
It looks like a flip-flop that doesn't say its name.
Goldman Sachs (GS) - Get Goldman Sachs Group Inc. (The) Report seems to be giving up on its ambitions to seduce Main Street.
The prestigious investment bank whose name is associated with Wall Street and complex financial products has just made a decision that clearly indicates that it is returning to its origins and what makes it bread and butter.
The famous bank will carry out a major reorganization, the fourth since 2020, report the Wall Street Journal and Bloomberg News. This restructuring will create three major divisions within the bank, much like its rivals.
This reorganization plans to regroup the investment-banking and trading businesses into a single unit. Basically, bankers advising companies on their M&A transactions, IPOs and capital raising will once again be under the same roof as traders.
Rafael Henrique/SOPA Images/LightRocket via Getty Images© Provided by TheStreet
Disbandment of Retail Bank
Goldman Sachs will also merge the asset management and wealth management activities into a single entity. Employees managing the money of the wealthy will unite with those managing the money of pension funds and other institutions with deep pockets.
A third division will house the bank's portfolio of fintech platforms, specialist lender GreenSky and partnership activities with Apple (AAPL) - Get Apple Inc. Report and General Motors (GM) - Get General Motors Company Report, write the Wall Street Journal and Bloomberg.
Contacted by TheStreet, Goldman Sachs declined to comment.
The bank publishes its results for the third quarter on Oct. 18 and could undoubtedly formalize this reorganization on this occasion.
The big bang of this reorganization is the radical disbandment of retail banking or consumer banking, which CEO David Solomon made one of his priorities when he took the reins in October 2018.
These efforts to reach consumers through an online retail banking platform offering traditional Main Street financial services - loans, deposits and credit cards - appear to be taking a big hit.
Part of the activities of this retail bank are thus found in the third division created by the reorganization, its partnerships with GM and Apple that includes GreenSky, a "fintech" that provides home improvement project loans to consumers since its inception in 2006.
The bank acquired GreenSky in 2021 to strengthen its consumer banking unit, Marcus. The goal was to have more predictable revenue businesses and reduce Goldman Sachs' reliance on trading and investment activities, which are more fluctuating.
The other piece of retail banking, that is under the Marcus brand, is going to be housed in the wealth management business. Marcus was launched in 2016.
Bet on the Rich
All this suggests that Goldman Sachs, whose bet on Main Street was met with internal skepticism, seems to be stepping on the brakes. The firm will again become the bank of the wealthy.
The reorganization indeed appears to mark the end of efforts to make Goldman Sachs everyone's bank. The firm no longer expects a big rollout of checking accounts to the masses, says Bloomberg News. These checking accounts will be reserved for well-off customers and employees of its partner companies.
Marcus Invest, the bank's robo-adviser (online savings management platform) and savings accounts will also now be reserved for the same wealthy customers.
"In the decades to come, I expect us to be a leader in our consumer business, just like we are in our institutional and corporate businesses," Solomon had said in a memo to employees in 2019 when the bank launched its first credit card in partnership with Apple.
But the strategic reversal illustrates the difficulties of the prestigious New York bank to develop in the business of retail banking, whose economic model is based on a large volume of customers and low margins contrasts with that of the more lucrative investment bank.
If Goldman Sachs has managed to attract around 13 million customers with Marcus, and accumulated more than $100 billion in deposits, it is still struggling to make this diversification profitable.
This year, the losses of Marcus, whose activity is 100% online and also available in the United Kingdom, should amount to at least $1.2 billion. Goldman Sachs hopes Marcus will be profitable from 2022.
Marcus generated revenues of nearly $1.1 billion in the first half, including $608 million in the second quarter alone, up 67.5% year-on-year. The firm had set a target of $4 billion annually in 2024.
Goldman Sachs will also merge the asset management and wealth management activities into a single entity. Employees managing the money of the wealthy will unite with those managing the money of pension funds and other institutions with deep pockets.
A third division will house the bank's portfolio of fintech platforms, specialist lender GreenSky and partnership activities with Apple (AAPL) - Get Apple Inc. Report and General Motors (GM) - Get General Motors Company Report, write the Wall Street Journal and Bloomberg.
Contacted by TheStreet, Goldman Sachs declined to comment.
The bank publishes its results for the third quarter on Oct. 18 and could undoubtedly formalize this reorganization on this occasion.
The big bang of this reorganization is the radical disbandment of retail banking or consumer banking, which CEO David Solomon made one of his priorities when he took the reins in October 2018.
These efforts to reach consumers through an online retail banking platform offering traditional Main Street financial services - loans, deposits and credit cards - appear to be taking a big hit.
Part of the activities of this retail bank are thus found in the third division created by the reorganization, its partnerships with GM and Apple that includes GreenSky, a "fintech" that provides home improvement project loans to consumers since its inception in 2006.
The bank acquired GreenSky in 2021 to strengthen its consumer banking unit, Marcus. The goal was to have more predictable revenue businesses and reduce Goldman Sachs' reliance on trading and investment activities, which are more fluctuating.
The other piece of retail banking, that is under the Marcus brand, is going to be housed in the wealth management business. Marcus was launched in 2016.
Bet on the Rich
All this suggests that Goldman Sachs, whose bet on Main Street was met with internal skepticism, seems to be stepping on the brakes. The firm will again become the bank of the wealthy.
The reorganization indeed appears to mark the end of efforts to make Goldman Sachs everyone's bank. The firm no longer expects a big rollout of checking accounts to the masses, says Bloomberg News. These checking accounts will be reserved for well-off customers and employees of its partner companies.
Marcus Invest, the bank's robo-adviser (online savings management platform) and savings accounts will also now be reserved for the same wealthy customers.
"In the decades to come, I expect us to be a leader in our consumer business, just like we are in our institutional and corporate businesses," Solomon had said in a memo to employees in 2019 when the bank launched its first credit card in partnership with Apple.
But the strategic reversal illustrates the difficulties of the prestigious New York bank to develop in the business of retail banking, whose economic model is based on a large volume of customers and low margins contrasts with that of the more lucrative investment bank.
If Goldman Sachs has managed to attract around 13 million customers with Marcus, and accumulated more than $100 billion in deposits, it is still struggling to make this diversification profitable.
This year, the losses of Marcus, whose activity is 100% online and also available in the United Kingdom, should amount to at least $1.2 billion. Goldman Sachs hopes Marcus will be profitable from 2022.
Marcus generated revenues of nearly $1.1 billion in the first half, including $608 million in the second quarter alone, up 67.5% year-on-year. The firm had set a target of $4 billion annually in 2024.
No comments:
Post a Comment