Goldman’s Consumer Banking Ambitions Cost It a Fortune. Now It Wants Out. – The Average Joe
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    Goldman’s Consumer Banking Ambitions Cost It a Fortune. Now It Wants Out.

    victorlei

    December 10, 2023

    When Goldman’s CEO isn’t busy DJ’ing at night clubs, he’s frantically explaining to investors why the company’s stock is getting a whooping. One of America’s most revered investment banks has spent eight years venturing into consumer banking, taking on heavyweights like JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC).

    In recent years, Goldman launched the online bank Marcus, which offered personal loans and savings accounts, and spun up a credit card division that gave us the Apple and General Motors cards.

    But its Wall Street reputation hasn’t translated to Main Street, and the company has lost over $4B on its consumer lending business since 2020.

    What went wrong? To juice up its loan profits through higher interest rates, Goldman extended loans and credit cards to borrowers with lower credit scores. It backfired, leading to a disastrous result:

    • Charge-offs (the percentage of loans deemed as losses) on its consumer portfolio reached a record 5.8% earlier this year.
    • Credit card losses hit 2.93% in Q2, the worst of all major US card issuers and “well above subprime lenders,” per JPMorgan.

    Seeking an exit: Facing these challenges, Goldman decided to pause lending and offload its loan portfolio at a $470M loss in July. In October, Goldman sold its consumer loans business GreenSky at a substantial loss just two years after acquiring it for $1.7B. And as a final farewell, reports suggest Goldman is ending its credit card partnership with Apple and GM.

    When 100-hour work weeks aren’t enough

    It’s been a challenging few years for banks, marked by rate hikes and the implosion of major regional banks. Goldman’s year-over-year (YoY) profit has fallen for eight ****consecutive quarters and is still reeling from a slow IPO market.

    • The bank’s year-to-date performance reflects a mere 2% return for $GS, far underperforming the S&P 500’s 20%.
    • However, on a five-year timeline, $GS is up nearly 120% — outperforming the S&P 500’s 74%.

    Too poor to bank with us: After 33 months of its stock remaining flat, Goldman’s fortunes could finally turn in 2024. The bank is refocusing its wealth business towards “ultra-high net worth” investors, and another factor could help bring its investment banking revenue back to growth: the return of IPOs (expected next year by Goldman) — which Bank of America’s CFO suggests “can come back very, very quickly” (WSJ).

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