NEW YORK (AP) — Goldman Sachs now not desires to be the bank for everybody.
The storied investment bank spent eight years attempting to expand its business beyond corporations and the rich. But in recent months, Goldman has signaled a partial retreat from those efforts by scrapping plans for a checking account broadly available to the general public and mothballing its personal loan business. A well-liked savings account and a bank card business survive for now.
Last week, the bank disclosed that it had amassed $3 billion in losses in its consumer banking franchise since 2020, mostly money put aside to cover potential loan losses in its Marcus personal loan business. Bank regulators are reportedly looking into whether the patron business had proper safeguards in place because it grew larger.
The retreat in consumer banking comes as Goldman tries to refocus on its roots: advising corporations on deals, investing, and trading, and servicing the well-to-do. The firm’s revenue from investment banking, trading and wealth management made up two thirds of total revenue last yr.
“I believe it became clear to us early in 2022 that we were doing an excessive amount of, it was affecting our execution,” said David Solomon, Goldman’s chairman and CEO, in a call with analysts when the bank reported its results earlier this month.
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Goldman’s push into consumer banking was considered one of the largest changes within the firm’s 154-year history. The investment bank needed to legally convert itself right into a bank holding company in 2008 throughout the financial crisis to get access to the Federal Reserve’s emergency funding operations. That led to jokes throughout the industry that the Wall Street titan Goldman Sachs was going to issue something as commonplace as an ATM card.
The jokes became a reality when Goldman bought the assets of GE Capital and launched its online only savings account providing an above market rate of interest. The savings account became an unexpected hit for Goldman, with waiting lists forming after its initial launch each within the U.S. and later within the U.K.
The web savings account is just not going away, and is taken into account an asset by the firm, Solomon told investors. The firm now holds greater than $100 billion in retail deposits, which is an affordable type of capital for the investment bank that historically hasn’t had access to such types of financing.
The private loan business, launched with great fanfare in 2016 with a broad promoting campaign under the brand Marcus, has been a trouble spot for the bank. Goldman Sachs executives acknowledged on the time of the launch that the Marcus brand was created to offer Goldman — with its veneer of being a powerbroker between Washington and Wall Street — a far more friendly and reachable edge.
The unsecured personal loans, largely utilized by customers to consolidate bank card debt, became a burden throughout the coronavirus pandemic when hundreds of thousands of Americans could now not pay their bills. The bank put aside billions of dollars to cover potentially bad loans and, unlike other big banks that were capable of release those reserves in 2021 and 2022, Goldman largely had to maintain adding to its reserves. Recent accounting standards which have required banks to model potential loan losses more aggressively also contributed to the choice to wind down the non-public loan business.
The big losses have caught the eye of bank regulators, which have also been looking into Goldman’s personal lending operations. The Wall Street Journal reported Friday that the Fed is investigating whether the firm had adequate safeguards around its personal loan business because it ramped up its lending.
“The Federal Reserve is our primary federal bank regulator and we don’t comment on the accuracy or inaccuracy of matters referring to discussions with them,” a Goldman Sachs spokesperson said.
Investors have long questioned the necessity for Goldman to enter consumer lending. The bank kept the patron banking operation under the umbrella of its wealth management division in its quarterly results, resulting in criticism that Goldman was hiding Marcus’ losses from its investors.
“We’ve got never understood the need of (Goldman) to expand a lot in consumer given such strength of its 150-year-old legacy franchise in capital markets,” wrote Mike Mayo, a long-time banking industry analyst with Wells Fargo Securities, in a note to investors.
One area Goldman isn’t retreating from is its relatively recent bank card business, which the firm calls platform solutions. The firm is underwriter for the Apple Card, the favored bank card deeply embedded into Apple Pay that launched in 2019, in addition to a co-brand bank card with General Motors. Goldman and Apple announced in October that they were extending their relationship until the tip of the last decade. Platform solutions also includes GreenSky, a fintech lender focused on home improvement loans, which the bank bought in 2021.
While the Apple Card and GM Card were major gets for Goldman, the brand new business has not been without its headaches for the firm.
The bank disclosed in August that the Consumer Financial Protection Bureau, the nation’s financial watchdog was investigating its managing of bank card accounts, including issues with billing, credit reporting, dispute resolution and other routine bank card issues.
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