Goldman Sachs is scaling back its consumer banking ambitions after learning that attracting consumers from scratch is not cheap.
Rather than trying to reach the masses, Goldman will focus on getting its millions of existing wealth management clients onto its online banking platform, CEO David Solomon said on a third-quarter earnings call Tuesday.
Solomon said the shift, part of a broader reorganization at the New York investment bank, will "meaningfully lower" its customer acquisition costs. Under the new structure, Goldman's direct-to-consumer operations will be part of a revamped wealth and asset management arm.
"It's very, very different to have those capabilities and be able to use them on our broad wealth platform versus directly marketing them to independent consumers en masse," Solomon told analysts. "I think one of the big learnings over the last few years is that we're better to play to our strengths."
The reorganization, which was
In recent months, some investors have voiced concerns about the consumer push by Goldman, which has built a reputation as a Wall Street dealmaker since its founding in 1869. Bloomberg News
Goldman's consumer franchise recorded $2.2 billion in net revenues over the last year, according to a company earnings presentation Tuesday, which did not state how much Goldman spent on the unit. Solomon declined to provide more details when asked by an analyst.
"We're not giving complete transparency on a four-wall look at the consumer business," he said. "It doesn't make money at the moment. I'm not going to go further than that."
The company's pullback "reflects the challenges of going up against incumbent consumer lenders," Mark Narron, senior director at Fitch Ratings, said in emailed comments.
"While the consumer strategy has been successful in generating deposits for Goldman Sachs, its expansion has also been costly in terms of operating expenses and provisions," Narron said. "A pullback in consumer ambitions plays to Goldman's proven strengths."
During the call, Solomon highlighted the success Goldman Sachs has enjoyed in deposit-gathering. Since introducing its Marcus platform in 2016, Goldman has pulled in more than $110 billion in deposits, and it currently has more than 15 million active customers.
Those deposits have given Goldman a far more stable source of funding than it had under its pre-2008 business model. The fragility of the old model led to Goldman becoming a commercial bank and facing greater regulatory scrutiny.
"The deposits are hugely valuable," Solomon said Tuesday, adding that it "was clear we needed deposits" after the 2008 financial crisis.
The Marcus platform offers high-yield savings accounts and certificates of deposit, though
Analysts pressed Solomon for more details about the new strategy and about any lessons Goldman has learned from its expansion into consumer banking.
UBS analyst Brennan Hawken said that "very few" of the investors he speaks with "are excited about the consumer business."
"So I wouldn't necessarily say that a pulling back in the aspirations would necessarily be negative," Hawken said. "I just want to try and understand strategically what the new direction is."
Solomon responded that shareholder sentiment "certainly affects some of our decision-making" and that while Goldman is narrowing its focus, it still sees significant opportunities to continue deploying the investments it's made.
Just three months ago, Solomon
On Tuesday, Solomon said that Goldman's aspirations were probably "communicated in a way that they were broader than we're now choosing to go."
"And we are making it clear that we're pulling back on some of that," he added.
Asked on CNBC whether Goldman may do away with its Marcus branding, Solomon said the company is "moving in a direction of really amplifying Goldman Sachs," but also that Marcus "has some brand identity," according to a transcript.
Solomon also expressed some caution about the economic outlook, telling analysts that the world is facing "significant headwinds" as inflation remains high, central banks raise rates sharply, geopolitical instability persists and financial conditions tighten.
"Everywhere I go, macro themes dominate," Solomon said. "My conversations with CEOs, they tell me that they are rethinking business opportunities and would like to see more certainty before committing to longer-term plans."
