Cost overruns and failure to meet profitability targets in the consumer lending business had created dissatisfaction within the bank.
(Photo: Reuters)
new York Goldman Sachs boss David Solomon orders the Wall Street house to undergo another major renovation. According to information from financial circles, Solomon wants to officially announce the changes in the publication of the third quarter results scheduled for Tuesday.
According to the information, a central part of Solomon’s plan is to combine the investment banking and trading businesses in one department. In addition, asset and wealth management are to be combined. The Wall Street Journal was the first to report these changes.
Changes are therefore also pending for the private customer business, which Goldman has built up under the “Marcus” brand. This area is to be integrated into wealth management. That would be a setback for the digital bank in which CEO David Solomon had high hopes.
A third department is said to include transaction banking, the bank’s portfolio of financial technology platforms, the specialist lender Green Sky and the partnerships with Apple and General Motors. A Goldman Sachs spokesman declined to comment on the remodeling.
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The move would be Solomon’s third major reorganization of Goldman’s businesses in four years. Cost overruns and failure to meet profitability targets in the consumer lending business have created dissatisfaction within the bank and accelerated discussions about a broader restructuring.
Online bank “Marcus” makes billions minus
CEO Solomon wanted to reduce dependence on volatile investment banking by expanding the commission business and setting up “Marcus”. But the online bank, founded in 2016, finds it difficult to get going and is making losses. According to the Bloomberg news agency, Goldman expects Marcus to post a loss of $1.2 billion this year. The start-up losses would add up to more than four billion dollars.
Goldman earned $1.49 billion last year from consumer loans, savings accounts, time deposits, and—in partnership with Apple—credit cards, up 23 percent from 2020. Solomon had $4 billion in revenue from its more than 14 million consumer customers through 2024 targeted.
According to Bloomberg, Dan Dees, Jim Esposito and Ashok Varadhan will lead the future combined investment banking and trading business. Dees and Esposito currently jointly manage investment banking, which includes advising on securities placements and mergers and acquisitions. Varadhan currently shares responsibility with Marc Nachmann for Global Markets, which encompasses all of Goldman’s trading operations. According to the information, Nachmann will move to the top of the combined wealth management and asset management after the restructuring.
For the third quarter, analysts for Goldman are forecasting revenues of around eleven billion dollars on average, which would be a decline of 17 percent compared to the previous year. In terms of earnings per share, the analysts are forecasting a slump by around half to just $7.47.
Goldman felt the slump in traditional investment banking as early as the second quarter. In view of the gloomy economic outlook, the Wall Street house also had to significantly increase risk provisions for bad loans. The result: Despite significantly higher proceeds in the trading business, profits fell in the months from April to June by 47 percent to $7.73 per share.
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