Goldman Sachs CEO David Solomon was in the hot seat on Tuesday at his firm’s second-ever investor day. Not long ago, Solomon was riding high as Goldman took advantage of the IPO and SPAC boom of 2020 and 2021, leading the firm’s stock to soar more than 200% between the COVID-lows of March 2020 and its September 2021 peak. The shoe is on the other foot now.
Profits at the investment banking giant plummeted nearly 70% year over year in 2022 as dealmaking collapsed amid recession fears and rising interest rates. And Solomon was under the microscope Tuesday as Goldman offered a report card of his tenure, tracking performance against long-term targets in an attempt to boost investor confidence in the CEO’s overall performance. Solomon was then forced to admit that Marcus, Goldman’s consumer banking arm, was a mistake and his team had failed to “execute well.” The CEO said Goldman is stepping back from its consumer banking push as losses mount and pivoting to another potential golden goose: asset management.
Goldman is already the world’s fifth-largest active asset manager, and Solomon has made moves to boost the business since October when he combined Goldman’s asset management and private wealth businesses into a single entity, marking the third major reorganization at the company within four years.
“The real story of opportunity for growth for us in the coming years is around asset management and wealth management,” he told CNBC Tuesday at the firm’s investor day gathering. “There’s real opportunity across the firm for us to continue to make the firm more durable.”
A Marcus misfire
Marcus was launched in 2016 under former CEO Lloyd Blankfein and offers consumers a full suite of financial services including checking and savings accounts, personal loans, and even automated investment management services. Blankfein said when launching the service that Goldman had serious competitive advantages in technology and risk management that would attract consumers to Marcus and allow it to outperform its peers in consumer banking.
Solomon—who is known for working as a part-time DJ and taking a Gulfstream jet to the Bahamas for weekend getaways—took control of Goldman from Blankfein in 2018 after serving for a decade as cohead of the investment banking division and quickly turned to expanding Marcus. In 2020, he praised the offering, arguing that it was “excellent by any standard” and telling investors he planned to move forward with a consumer-focused “long-term strategy.”
But in the years since, Goldman’s consumer banking business has lost more than $3 billion, and Insider’s Dakin Campbell reported earlier this month that some of Goldman’s more than 400 partners are complaining about Solomon’s poor performance, going so far as to put forward potential replacement candidates. The news comes after Goldman slashed 3,200 jobs and cut partners’ compensation by roughly 50% after its 2022 profit plunge, according to unnamed current and former partners Insider spoke with.
Multiple senior partners, including the former head of the asset management division, have also left the firm under Solomon’s tenure. And Goldman was forced to set aside $2.3 billion this year for legal fees to prepare for the verdict on a 12-year-old gender bias suit, the fallout from the collapse of hedge fund Archegos in 2021, and various other lawsuits.
Changing the narrative?
Bank of America analysts, led by Ebrahim Poonawala, said in a Monday research note that Goldman’s investor day was a chance for Solomon to regain control of the increasingly pessimistic “strategic narrative” among investors about his firm.
“This narrative has been clouded by the persistent negative headlines tied to the consumer business (losses, personnel departures, product delays/terminations, regulatory scrutiny), which have given the impression that the Goldman leadership has lost control of delivering on its strategic priorities,” they wrote.
The analysts recommended Solomon opt for a “course correction” away from the consumer-focused banking strategy and toward more “strategically and financially viable” alternatives. The CEO may have liked the report, because he followed BofA’s playbook to a tee, assuring investors that the firm has “narrowed ambitions in the consumer space”—and even hinting that he might offload the consumer platform altogether.
“It was clear we lacked [a] certain competitive advantage, and we did too much too quickly, which affected our execution,” Solomon told audience members at Goldman’s investor day, noting he was considering “strategic alternatives.”
