By Elizabeth Dilts Marshall and Matt Scuffham
NEW YORK (Reuters) - Goldman Sachs Group Inc (N:GS) on Wednesday set targets to grow its fledgling consumer unit and transaction banking business while improving efficiency and returns to shareholders, but urged patience at its first-ever investor day presentation.
"We are planting seeds that will take time to mature and grow," Chief Executive Officer David Solomon said in an address to investors, some of whom have complained that the Wall Street powerhouse has been too slow to shift its focus away from volatile trading into the more stable consumer area. Solomon succeeded Lloyd Blankfein in October 2018.
Goldman Sachs shares, which have underperformed rivals, gave up early gains and slid 0.6 percent in mid-morning trade.
Goldman has been slower than its Wall Street rivals to develop retail banking and respond to the changing trading environment. Wednesday was an opportunity to present plans bank executives say will grow deposit balances at its consumer bank to $125 billion or more over the next five years. It targeted increasing consumer loans and card balances to more than $20 billion during the same period.
Goldman also unveiled financial targets and details on its other multibillion-dollar businesses. Its decision to hold an investor day and to set broad goals was an effort to address investor grievances about a lack of transparency.
"We believe investor patience will be important as these targets will likely be (met) toward the end of the three-year period due to the investments in and ramping (up) of ... consumer banking and transaction services," said Glenn Schorr, analyst at Glencore (LON:GLEN) ISI.
Goldman said it is aiming for a 60% efficiency ratio over the next three years, while it projected an over 13% return on equity (ROE) and over 14% return on tangible equity, which are key measures of profitability. A lower efficiency ratio means a bank is better at managing its costs relative to revenue.
Analysts noted that Goldman's improved shareholder returns target was still short of the 17 percent medium term target set by rival JPMorgan Chase & Co (N:JPM).
In the longer term, defined as five years or more, Goldman said it was aiming for "mid-teen returns" of newer businesses such as transaction banking and the consumer bank.
Goldman also plans to pull in $1 billion in revenue through lower interest expenses, according to its presentation.
"We view these targets as approximating expectations," Barclays (LON:BARC) analysts Jason Goldberg said in a research note.
Solomon said the bank's third-party alternatives investment business could add $100 billion in net inflows over time.
Trading revenues still make up roughly 40% of Goldman's revenues, but securities division executives said they are "acutely aware" the market for trading is shrinking and growing more competitive with the trend toward passive investing.
Chief Operating Officer and President John Waldron said the bank was taking a "patient, methodical, long term approach".
Investors had been eager to hear more about the consumer bank, which consists of Goldman's online bank Marcus and its credit card with Apple (NASDAQ:AAPL).
Marcus is a central pillar of Solomon's vision for Goldman, whose 151-year history has had very little to do with Main Street. Analysts believe it will take at least a decade for the consumer bank to become as substantial as other major businesses.
In the year ended Dec. 31, Goldman's consumer deposits stood at $60 billion and it issued $7 billion in loans and credit card balances during the fourth quarter.
At the moment, the consumer bank generates just 2.4% of Goldman's annual revenue.