Goldman Sachs’ Profit Plunge Confirms a Woeful Consumer Strategy

(Photo by Connor Lin/The Daily Upside)
(Photo by Connor Lin/The Daily Upside)

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How did Goldman Sachs go from being a giant vampire squid to supermarket sashimi so fast? The bank posted one of its worst quarters in years and was the only one of the six US megabanks to disappoint Wall Street.

Goldman said Wednesday that its second-quarter profit plunged 60% from a year ago to $1.22 billion, much of that due to pain in its consumer banking and asset management divisions. For the moment, CEO and part-time DJ David Solomon’s day job seems safe, but it’s not a good look for the firm.

What Could Go Wrong?

In the mid-2010s, the 154-year-old Wall Street investment-bank stalwart decided to diversify into the consumer banking space. Its executional know-how in the area hasn’t seemed to live up to the promise.

In 2019, Goldman thought it had a big success with its Apple Card partnership, but it soon became a money pit. Other than interest, the credit card doesn’t charge traditional costs like annual, over-the-limit, foreign transaction, or late fees. Plus, Goldman approved the card for seemingly anybody who applied, which ultimately led to a plethora of missed payments. In 2020, Solomon merged Goldman’s retail division with its wealth management arm, where staffers didn’t have expertise in dealing with more than a few wealthy customers. With these moves contributing to more than $3 billion in overall losses since 2020, the bank has seen a handful of Goldman’s top executives depart.

CEO Solomon has begun a pullback from the consumer business, but the damage still lingers:

  • Goldman acquired GreenSky, a fintech business that facilitates home improvement loans, in 2021. On Wednesday, the bank said it was writing down $504 million in goodwill in its consumer business — essentially, the GreenSky division, which Goldman said last April it will consider selling. In addition to the consumer banking doldrums, Goldman also wrote down $485 million in real estate investments.
  • Even its bread-and-butter investment banking arm saw revenue drop 20% in Q2, with the uncertain economy and higher interest rates wrecking the dealmaking business that also contributed to the bank starting to lay off 3,200 employees in January.

Not Going Anywhere: While many CEOs would start sweating from the increased investor — and employee — doubt, Solomon seems relatively cool. For now, the board has his back: Reuters reported that Goldman Sachs’ directors are thoroughly behind Solomon’s plans to revive the bank’s stock, which has underperformed the S&P 500 this year, by focusing on asset management and its core Wall Street business.