Goldman Sachs trying to avoid repeating mistakes that led to billions in losses
2023.02.28 14:06
Goldman Sachs trying to avoid repeating mistakes that led to billions in losses
By Kristina Sobol
Budrigannews.com – Following missteps that resulted in billions of dollars in losses, Goldman Sachs Group Inc.’s Chief Executive David Solomon stated that the bank is considering “strategic alternatives” for its consumer business.
These options were not specified by Solomon. Unsecured lending, a portfolio that could be sold, has already been stopped by Goldman. Last year, the company’s Marcus consumer business was merged into the merged asset and wealth management arm. GreenSky, a fintech platform, transaction banking, and credit cards are all part of the newly formed Platform Solutions unit.
John Waldron, the company’s president, and Stephanie Cohen, the global head of Platform Solutions, reiterated Solomon’s remarks, which indicate a further retreat from the company’s Main Street goals.
At the bank’s second investor day in its 154-year history, executives stated that the bank will aim to increase fees from asset and wealth management and improve performance in its fintech unit.
Solomon told investors at the company’s New York headquarters, “Sometimes we fall short.” We sometimes fail to act. However, we always adapt and learn.”
Investors and analysts will also look at the CEO’s performance and growth plans.
Fitch Ratings analyst Mark Narron stated, “Goldman is realizing that it lacks the potential to reach scale in some parts of its consumer strategy, and therefore the clock either has or could run out.” “The leading consumer lenders or card issuers would be the obvious potential buyers, even though it’s unclear which specific assets could be targeted for divestiture,” he stated.
After losing $3 billion over the course of nearly three years, Cohen stated that she anticipated the Platform Solutions business to achieve pre-tax profitability by 2025.
According to Goldman’s finance chief Denis Coleman, the company has cut 3,200 jobs this year and is now focusing on strategic hires rather than filling positions left vacant by departing employees. Payroll costs should fall by $600 million as a result of these measures.
The division, according to Dan Dees, co-head of global banking and markets, is aiming for returns in the mid-teens. Financing across equities, fixed income, currencies, and commodities is one of its top priorities. From 12% of revenue in 2013, the financing share has already increased to 22% of revenue last year.
Dees stated, “This is a winning business.” The division, which contributed 69% of the company’s revenue last year, has room for expansion.
Additionally, the bank intends to reduce some alternative investments that impacted profits last year.
It stated, “We will identify a historical principal investment portfolio earmarked for sell-down, and lay out a plan to reduce this portfolio to zero over the medium term.” This portfolio was valued at $30 billion at the time.
The bank reiterated its “through the cycle” longer-term goal of 15% to 17% return on tangible equity and stated that it had “significant” room to expand its wealth management market share globally and in the United States.
Goldman’s stock dropped 2.1% on Tuesday, falling behind other major U.S. banks.
Michael Wong, an analyst at Morningstar Inc., stated prior to the event, “Earnings could continue to be subdued for the next year or more, as the economic environment remains uncertain, which should pressure investment banking and asset management revenue.”
He stated that “trading is a wild card” and that Goldman’s markets division could suffer in the short to medium term after a strong performance in recent years.
In an interview with CNBC, Solomon also stated that the bank would continue to serve Chinese customers, despite the fact that doing business there will become more difficult in the coming years.
Solomon stated, “We are at a very difficult point in our bilateral relationship with China, and my own view is that it only gets tougher.” He added, “It is a more ‘cautious’ time for investment in our own franchise.”
Over Taiwan and the downing of a Chinese spy balloon that was discovered flying over the United States earlier this year, the relationship between the two largest global economies has deteriorated in recent months.
