Goldman shares fall after report of Fed's consumer-focused investigation

Goldman Sachs shares slipped Friday as a new report highlighted scrutiny that the Federal Reserve is placing on the bank's consumer operations. 

The Wall Street Journal reported that the Fed is investigating whether Goldman's Marcus division — the company's since scaled back effort to reach U.S. consumers — had implemented adequate controls ahead of its expansion in consumer lending.

The report, which cited people familiar with the matter, pointed to worries at the Fed over shortcomings in the bank's internal monitoring and said the regulator was reviewing the outcome of any potential issues consumers faced.

Goldman's stock price fell after the report and ended the day down 2.54% to $341.84 per share.

Asked to comment on the story, a Goldman Sachs spokesperson said, "As we told The Wall Street Journal, the Federal Reserve is our primary federal bank regulator and we do not comment on the accuracy or inaccuracy of matters relating to discussions with them."

The Fed declined to comment.

Bloomberg News reported in September on a review the Fed was undertaking of Goldman's consumer division, though the Journal article on Friday says it's now escalated to a more detailed investigation.

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The news is another sign of regulatory scrutiny facing Goldman Sachs' expansion beyond its Wall Street roots into a more consumer-facing bank. In August, the company disclosed that the Consumer Financial Protection Bureau was investigating Goldman's consumer credit cards business, where it partners with Apple and General Motors. The CFPB investigation is covering refund practices, billing error resolutions and advertisements, among other things.

The update on the Fed's probe is "not life-threatening, but certainly disappointing," Wells Fargo bank analyst Mike Mayo wrote in a note to clients.

"Another investigation into the consumer business makes Goldman's foray into consumer look even worse, and can reduce management credibility, particularly given so many statements about [Goldman's] ability to manage risk and build best-in-class platforms," Mayo wrote.

It's not clear whether the investigations could result in major fines, but the probes will likely "divert some resources away from running the business" and lead management to focus more on the consumer business, Mayo wrote.

This week, Goldman announced it would soon stop making new personal loans to consumers and that it would postpone the launch of a checking account for wealth management customers. The latter update marked a significant change from last year, when Goldman was aiming to open up a checking account option for U.S. consumers rather than solely focusing on its existing wealth management clients.

"We tried to do too much too quickly," Solomon said on an earnings call Tuesday.

Goldman's consumer focus has now narrowed to three areas: continuing to gather deposits through its Marcus savings accounts, building on the GreenSky point-of-sale lending platform it bought last year and expanding its credit card partnerships.

The GreenSky and credit card initiatives are now part of a new division at Goldman called Platform Solutions. Net revenues have grown in the division since 2020, but expenses are continuing to pile up and have contributed to a $3.8 billion pretax earnings loss over the last three years.

Solomon said this week that Goldman Sachs is "very focused on developing a path toward profitability" for the Platform Solutions group.