Why Goldman’s consumer ambitions failed, and what it means for CEO David Solomon

David Solomon, chief executive officer of Goldman Sachs Group Inc., during a side event on the third day of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, January 19, 2023.

Stefan Wermuth Bloomberg | Getty Images

When David Solomon was elected he succeeded Lloyd Blankfein in the position Goldman Sachs At the beginning of 2018, fear ran through the bankers working on a small company known as Marcus.

The man who lost to Solomon, Harvey Schwartz, is one of the firm’s biggest supporters in consumer banking and is often seen walking the floor at Goldman’s New York headquarters where it is being built. Will Solomon kill the work that was started?

The leaders were happy when Solomon embraced the profession soon after.

Their support was short-lived, however. That’s because many of Solomon’s decisions over the next four years — along with the company’s high-charging, selfish culture — ultimately led to the collapse of Goldman’s consumer ambitions, according to a dozen people who you know the situation.

The idea behind Marcus – the transformation of a Wall Street powerhouse into a Main Street player who can take on giants like Jamie Dimon JPMorgan Chase Price – occupied the financial world from the beginning. In the three years since its launch in 2016, Marcus – which reflects the first name of the founder of Goldman – has attracted $ 50 billion in important deposits, a large lending business and won from fierce competition between banks to provide credit cards to many Apple iPhone users. .

Solomon in danger?

But as Marcus morphed from a side project to a focus point for investors hungry for a bigger story, the business quickly expanded and finally buckled under the weight of Solomon’s goal. At the end of last year, Suleimanu submitted the request for development in the business, divided it in a reorganization, killed the first loan product and saved an expensive account.

The event came at the same time as Solomon did. More than four years into his job, the CEO is facing pressure from another source – his company’s disaffected partners, whose leaks to the media over the past year have fueled the bank’s strategy and shown disdain for the big bank. DJ hobby.

Goldman shares are higher bank account balance in the era of Solomon, who helped through his strong business activities and investment banking activities. But the investors are not giving Solomon the highest amount of his income, while he is still there Morgan Stanley has opened up a huge lead in recent years, with a price to book value nearly double that of Goldman.

This added to the tension at Solomon’s second investor day meeting on Tuesday, where the chief executive will provide details on his new plan to build revenue streams. Investors want an explanation of what went wrong at Marcus, which was outlined at Goldman’s investor day earlier in 2020, and evidence that management has learned lessons from the costly incident.

Original story

“We’ve made a lot of progress, we’ve been flexible when needed, and we look forward to updating investors on that progress and the way forward,” said Goldman communications chief Tony Fratto in a statement. a statement. “It’s clear that the many innovations since our last investor day are paying off in all of our businesses and generating returns for our shareholders.”

Marcus Architects couldn’t have predicted its trajectory when the idea was born outside in 2014 at the vacation home of then-Goldman chairman Gary Cohn. While Goldman is a leader in advising corporations, heads of state and the wealthy, it has no banking business.

They gave it a unique brand, in part to distance it from Goldman’s negative outlook after the 2008 crisis, but also because it would allow them to spin off the business as an independent fintech player if they wanted to, according to the people. you know. the matter.

“Like many things Goldman started, it started not as a big vision, but as, ‘Here’s a way we can make money,'” one of the people said.

Ironically, Cohn himself opposed the proposed sale and told the bank’s board that he did not think it would succeed, according to people familiar with the matter. In this way, Cohn, who left in 2017 to join the Trump administration, is a symbol of many of the company’s old guards who believe that consumer finance is simply not in Goldman’s DNA.

Cohn declined to comment.

Paradise is missing

As soon as Suleimanu took over in 2018, he started a series of corporate reforms that will have an impact on the embryo business.

From its inception, Marcus, led by ex-Discover CEO Harit Talwar and veteran Omer Ismail, was purposefully isolated from the rest of the company. Talwar was keen to tell reporters that Marcus has the advantage of being the first startup in the 150-year-old investment bank.

The first of Solomon’s reforms came early in his career, when he was assigned to the company’s investment management division. Ismail and others have been arguing about Suleman’s return, they think it will hinder the movement.

Solomon’s reasoning was that all of Goldman’s individual businesses should be in the same area, even though most of Marcus’ clients have only a few dollars in loans or savings, while the average private client has $50 million. in stock.

In the process, Marcus executives lost some of the opportunities they could call themselves in terms of engineering, marketing and personnel, in part because of Solomon’s high-profile hires. Marcus’s engineering resources were drawn on in various ways, including a project to consolidate his technology portfolio with that of the larger company, a move that Ismail and Talwar disagreed with.

“Marcus has become a shiny object,” said a source. “At Goldman, everyone wants to leave their mark on the shiny new thing.”

‘Who the fk believes this?’

After the deposit business, which has attracted 100 billion dollars so far and really hit the money for the company, the biggest consumer success was the release of the Apple card.

What is not known is that Goldman won Apple’s account in part because it agreed to terms that other credit card issuers would not. After a credit card industry veteran named Scott Young joined Goldman in 2017, he was interested in aspects of the Apple deal, according to people familiar with the matter.

“Who the f—k believes this?” Young said in a meeting shortly after receiving details of the deal, according to an attendee.

Some of the client service aspects of the deal ultimately added to Goldman’s unexpected price tag for the Apple partnership, the people said. Goldman executives were eager to seal the deal with the tech giant, which happened before Solomon became CEO, they said.

The young man refused to comment on the explosion.

The rapid growth of the card, which was launched in 2019, is one reason why the consumer segment has seen a loss of revenue. Back in the recession, Goldman had to set aside reserves for future losses, even if they weren’t. The card’s launch also brought regulatory scrutiny over the way it handled customer charges, CNBC reported last year.

Push back on the boss

Beneath the smooth veneer of the bank’s fintech offerings, which were gaining traction at the time, there was growing tension: Disagreements with Solomon over products, acquisitions and branding, said the people, who declined to be identified speaking about Goldman’s internal affairs.

Ishmael, who is respected in the house, and has the ability to retreat against Solomon, has fought some battles and fought others. For example, Marcus officials had to entertain potential sponsorships with Rihanna, Reese Witherspoon and other celebrities, and analyze whether Goldman’s brand could replace Marcus’s.

The CEO is said to be excited by the growth of fast-growing digital players like Chime and believes that Goldman needs to offer a checking account, while Marcus executives do not believe the bank has an advantage there and should. continue as a focused player.

One of the last pieces of Ismail came when Solomon, in his second reshuffle, made his chief strategy officer Stephanie Cohen head of the department of real estate buyers in September 2020. – more than his predecessor Eric Lane, and Ismail is feeling that he deserves a promotion.

Within months, Ismail left Goldman, sending shockwaves through the consumer division and deeply angering Solomon. Ismail and Talwar declined to comment for this story.

Boom & crack

Ismail’s departure ushered in a new era, the last of which was disastrous for Marcus, a period of inactivity that included huge increases in hiring and spending, product limitations and waves of departures.

Now run by two ex-tech executives without retail expertise, ex-Uber CEO Peeyush Nahar and Swati Bhatia of payments giant Stripe, Marcus, ironically, also condemned Goldman’s success on Wall Street in 2021.

The outbreak’s rise in public listings, combined with other deals means that Goldman is heading for a banner year for the investment bank, its most profitable ever. Goldman should plow some of those sluggish profits into more durable consumer banking revenues, the thinking goes.

“People in the company, including David Solomon, were like, ‘Go, go!'” said someone who knew the time. “We’ve got all these excess profits, you’re going to generate revenue over and over again.”

‘Just the beginning’

In April 2022, the bank expanded its checking account test to employees, telling employees that “what we hope will soon be the first checking account for tens of thousands of customers.”

But as 2022 rolls around, it’s clear that Goldman is facing a different situation. The Federal Reserve ended a decade-and-a-half of cheap money by raising interest rates, which caused disruptions in the nation’s capital markets. Of the six major U.S. banks, Goldman Sachs was hit hardest by the downturn, and Solomon unexpectedly moved to cut spending at Marcus and elsewhere.

After learning that Marcus was bleeding, Solomon finally decided to back off his efforts to reach out to investors and the media. Its savings account will be returned to property management clients, which will save money on sales costs.

Now it’s Ismail, who joined a Walmart-backed fintech called One in early 2021, who will continue to stay in the banking world with a direct-to-consumer digital startup. His former employer Goldman would have been more content with being a behind-the-scenes player, providing his expertise and balance sheet to established brands.

For a company as proud as Goldman, it would mark a sharp descent from Solomon’s vision of the past few months.

“David would say, ‘We’re building the business for the next 50 years, not for today,'” said one former Goldman analyst. “He should listen to his voice.”

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