Goldman Sachs mulls deal options after consumer flop

© Reuters. FILE PHOTO: The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly/File Photo

By Saeed Azhar and Lananh Nguyen

NEW YORK (Reuters) -Goldman Sachs Group Inc's Chief Executive David Solomon told investors on Tuesday the bank is considering "strategic alternatives" for its consumer arm, raising prospects for a potential sale after the business lost billions of dollars.

Solomon's remarks were made at the bank's second investor day in its 154-year old history.

Goldman could sell a loan portfolio of $4.5 billion that was part of its digital bank, called Marcus, analysts said. The company had already halted unsecured lending as it stepped back from Main Street.

Marcus was folded into the company's merged asset and wealth management arm last year. The newly-formed Platform Solutions unit houses transaction banking, credit cards and a fintech unit, GreenSky purchased for $2.2 billion in 2021.

"We would like to see the sale or de-risking of the card and merchant point-of-sale units to a new buyer or majority-controlled partner," Kenneth Leon, research director at CFRA Research, wrote in a note.

The consumer business that Solomon championed lost $3 billion in almost three years and its credit card business is being probed by regulators. Marcus's woes also weighed on fourth-quarter earnings, which fell well short of analyst expectations.

"It makes sense that they would want to investigate all alternatives given the near-term drag on profitability these businesses are creating for the firm," said David Fanger, an analyst Moody’s Investors Service.

Company president John Waldron and Stephanie Cohen, global head of the Platform Solutions unit, echoed Solomon's comments about the bank's consumer business, signalling a further retreat from its Main Street ambitions.

Cohen said she expected Platform Solutions to break even on a pre-tax basis by 2025 after it lost $3 billion in nearly three years. 

The bank will aim to grow fees from asset and wealth management and drive better performance in its fintech unit, while taking more market share in its traditional powerhouses of trading and investment banking.

"Sometimes we fall short," Solomon told investors at the company's New York headquarters. "Sometimes we don't execute. But we always learn and adapt."

SHARES FALL

Goldman shares fell 3.8% on Tuesday, trailing rivals. Some analysts blamed the lack of specificity about the bank's plans for the consumer business.

After cutting 3,200 jobs this year, Goldman has stopped filling vacancies as employees leave, focusing instead on strategic hires, its finance chief Denis Coleman said. Those measures should reduce payroll costs by $600 million.

Dan Dees, co-head of global banking and markets, said the division was targeting returns in the mid-teens and prioritizing financing across equities, fixed income, currency and commodities. The share of the financing had already grown to 22% of revenue last year from 12% in 2013. 

The bank also plans to slim down some alternative investments that weighed on profits last year.

Goldman restated a longer-term target for return on tangible equity of 15% to 17% "through the cycle" and said it had "significant" room to grow market share for wealth management in the United States and globally.

Separately, Solomon also warned in an interview with CNBC that operating in China will get tougher over the next couple of years, but added that the bank would continue to serve clients in the country.

"It is a more 'cautious' time for investment in our own franchise," Solomon said. 

Looking ahead, Solomon said market sentiment had improved slightly, but clients were still concerned about persistent inflation weighing on the economy. Capital markets may improve in the second half of the year, but there are plenty of risks to the outlook, he said.

Goldman has not said when it expects to complete its review of options for the consumer business.

"We got a lot of questions on it in the room, and I know people are focused on it and quite interested in the next steps," Carey Halio, the company's chief strategy officer, told Reuters in an interview. "We can't give any timeframe at this point, but obviously as soon as we have more information to share, we will."