“No idea where to go”

“We are in the midst of a strategic transformation,” Solomon told analysts on Wednesday. The Goldman boss is currently responsible for many things: bonus cuts, waves of layoffs and expensive strategic mistakes are weighing on some Goldman partners. “Goldman is at war with itself,” headlined the Wall Street Journal in June.

Solomon currently has two major roadblocks that are weighing on both numbers and sentiment. Firstly, there would be the expensive withdrawal from private customer business. With the online bank Marcus, Solomon actually wanted to create a “digital private customer bank of the future” with a wide range of products and services, as he announced at the Investor Day in 2020.

With the strategy, which was introduced under his predecessor Lloyd Blankfein, Goldman wanted to become less dependent on the volatile business with investment banking and securities trading. But the foray into Main Street has now become too expensive and too complex.

gap to arch-rivals

The return on equity, an important measure of profitability, fell to four percent due to the one-off effects and is therefore far from the target of 15 percent that the bank wants to achieve in the medium term. Goldman is also at the bottom here compared to the competition. Industry leader JP Morgan Chase posted a return on equity of 20 percent last week.

The current numbers reinforce the reputation that Goldman’s results are extremely volatile. Solomon actually wanted to change that.

Earlier this year, the institution sold half of Marcus’ loan portfolio, writing down $470 million in the first quarter. The rest has now been sold for a profit of $100 million.

The bank is also looking for a buyer for the credit provider Green Sky, which it only took over in 2021 for $ 2.2 billion. With fintech valuations currently well below where they were two years ago, Goldman wrote down $504 million on them in the second quarter. In January, Solomon admitted that its foray into retail banking had caused losses of more than $3 billion since 2020.

Goldman could also separate from the credit card business, as US media reports. With a lot of effort, the bank issued a credit card for the iPhone manufacturer Apple in 2019. The partnership also includes a savings account for credit card customers, which only started in April. But that doesn’t seem to fit with Goldman’s strategy either. American Express could be a possible buyer, it said.

After the expensive withdrawal from private customer business, the question of future strategy arises. At the most recent investor day at the end of February, Solomon focused on the asset and wealth management division, AWS for short. The area combines both the business with institutional investors and with wealthy clients with assets of 10 million dollars or more. This includes a number of private equity and other mutual funds that Goldman issues. The division should be “the central growth driver” in the future, Solomon said in February.

Income from private banking higher than ever

In the past quarter, however, AWS showed mixed results. Earnings fell 4 percent year over year to $3.1 billion. The division, managed by the German-born Marc Nachmann, also recorded impairments on real estate investments. The prices of office properties in particular have come under pressure in many metropolises because employees are still working from home, at least in part, a good three years after the start of the pandemic.

At the same time, the division reported $2.4 billion in management fee income, a record Solomon pointed out. Revenues from private banking and lending were also higher than ever at $874 million.

The drama in the news is far greater than it is in our building. Tony Fratto, Goldman Sachs press officer

Goldman has historically used its own balance sheet for investments more than other banks. This can lead to large fluctuations in the results. Nachmann announced in February that it would scale back engagement and focus more on managing client funds and collecting fees for doing so.

Analysts are not convinced that this strategy will work. Wealth management “is an area where Goldman is putting capital and energy. But it’s hard to say if that will really make a big difference. The market is increasingly crowded,” said Morningstar’s Michael Wong.

Doubts about the strategy

Arch-rival Morgan Stanley was the first Wall Street house to pursue this strategy after the financial crisis and consolidated its position with a series of investments worth billions. Citigroup is also expanding asset management. The fact that Goldman now also wants to jump on the trend “is not really a groundbreaking strategy,” blasphemed a banker. “Solomon is in the process of rewinding the past five years and has no idea where to travel next.”

Even Blackrock CEO Larry Fink got involved in the discussion. “There’s obviously a split within the company,” Fink said in early July on Fox Business. The world’s largest wealth manager is Goldman’s second largest shareholder. Overall, however, Fink Solomon had his back and was satisfied with his work.

The discussions unsettle the Goldman staff. “Some of our employees are the best in the world at what they do. If the bank then has a couple of tough quarters, that can cause a lot of stress,” admits press chief Tony Fratto. He thinks the many negative headlines about the Wall Street house, which was once spoiled by success, are exaggerated. “The drama in the news is far greater than it is in our building.”

In the core business, investment banking, there are first positive signs, emphasized Solomon. “The atmosphere is better than it was six to eight weeks ago,” he clarified. Morgan Stanley CEO James Gorman made a similar statement on Tuesday. The war in Ukraine and high inflation coupled with rapidly rising interest rates and fears of a recession had scared customers away for the past year.

But the US Federal Reserve could soon be at the end of its interest rate hikes, and many economists now see a significantly lower risk of a recession. As a result, “conversations with clients about mergers and acquisitions are picking up again,” Solomon said. Investment banking fees for the quarter fell 20 percent year-over-year to $1.4 billion.

CEO’s controversial DJ career

But it’s not just the economic problems that are troubling Solomon. There is also resentment about his unusual hobby: he spins records in clubs and at festivals under the stage name DJ D-Sol. Actually, it should enhance his image, show that even one of the most powerful bankers on Wall Street has time to pursue his passion.

But the plan didn’t work out. The image of a celebrating CEO behind the DJ booth “does not go down well with many internally,” says a former employee. Solomon’s predecessor, Blankfein, is also said to have complained to partners after a meeting in Miami in February, according to the Wall Street Journal.

Goldman shares were down 1.3 percent when it opened in New York. Since the beginning of the year, the price has fallen by around four percent. Morgan Stanley, on the other hand, has gained almost eight percent on the stock exchange since the beginning of January. Solomon announced a $30 billion share buyback program in February, which he remains committed to. The dividend recently rose by ten percent.

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