Goldman Sachs ‘making progress’ on consumer bank revenue goal

Goldman Sachs’s consumer and wealth management business proved to be a source of strength during a quarter in which the firm’s overall revenues fell amid economic and geopolitical volatility.

Net revenues for the segment reached a record high of $2.2 billion through June, up 25% year over year. Within the business as a whole, consumer banking was the star, with net revenues of $608 million surging 67% from the year-ago quarter on higher deposit and credit card balances.

But it wasn’t the only standout. Compared to the second quarter of 2021, incentive fees climbed 60% to $24 million, while private banking and lending revenues rose 23% to $230 million.

The New York investment firm, which has $1.6 trillion of assets, has set out a fairly aggressive growth plan for the segment, aiming to generate more than $4 billion of revenues from it by 2024.

“You can obviously see this quarter that we’re making progress on revenue in the business,” Goldman Sachs CEO David Solomon told analysts Monday during the company’s earnings call.

Goldman Sachs, which is still primarily an investment bank, has been building Marcus, its digital consumer bank, since 2016 when it launched an online savings account and an installment loan. It has since added other products and services, including a digital wealth management platform called Marcus Invest, the virtual Apple Card and, most recently, home improvement loans. 

Earlier this year the company reached a deal with General Motors to issue the My GM Rewards Card, which replaces another GM card previously managed by Capital One. And later this year, it plans to roll out a fee-free digital checking account, which is currently in testing mode with Goldman’s U.S.-based employees. The account will include a physical debit card.

When asked by an analyst how the firm is thinking about the business in relation to a potential recession and competition from fintechs, Solomon said it remains clear about its intention to “create a leading digital platform in the consumer banking business” over time.

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Another analyst wanted to know if there are other acquisitions or partnerships in the works.

The focus is on the business at hand, including the new checking account, Solomon said.

But “certainly, as we get out into 2023 and 2024, we'll be more open to other partnerships and other meaningful things going forward,” he added.

This quarter’s solid performance for the consumer and wealth management businesses contrasts with a slip in Goldman Sachs’s net revenues, which declined 23% year over year to $11.9 million. Net income, meanwhile, tumbled 48% to $2.9 billion, while earnings per share fell 49% to $7.73 for the period.

Still, those numbers beat analysts’ forecasts. The projection for earnings per share, for instance, was $6.56 according to the average estimate of analysts polled by FactSet Research Systems.

The company blamed the decline in headline numbers on “significantly lower” net revenues in investment banking and asset management, which were driven down by the uncertainty created by Russia’s war on Ukraine and the potential for economic headwinds in the United States and elsewhere. Investment banking revenues fell 41% year over year to $2.1 billion, while asset management revenues dropped by 79% to $1.1 billion for the same three-month period.