How Goldman Sachs Failed At Consumer Banking

Goldman Sachs saying the name out loud conjures images of Ivy League educated investment bankers and tailored suits managing money for the wealthiest of the wealthy think about Investment Banking Goldman Sachs is the word that comes up first we're closing deals in high-rise Corporate Offices advising the wealthiest of the wealthy so we're talking about governments here we're talking about CEOs they're advising them on how to tap

Capital markets who to buy what to buy how to sell stock and that's really their bread and butter that's what they're known for I'd give a grade of a to their 150 year old Legacy business of capital markets they're killing it that's 70 of the company and frankly they're probably greatest of all time in Deal making Goldman Sachs is the leader in Investment Banking and markets

extraordinary people they work hard every day to serve our clients and the relative performance in that business has been fantastic so why did Goldman Sachs the 150 year old investment Bank try to get into checking accounts and credit cards this was something that was a urging opportunity for us we did not execute well on it and what's more how did Goldman Sachs fail at that foreign

the roots of Goldman's foray their Adventure into consumer banking really go back to the financial crisis and in 2008 2009 that time frame they Morgan Stanley actually became Bank holding companies I mean there were concerns that Oregon State lingo attacks would go under during the financial crisis so they became Bank holding companies they would be regulated by the FED they would have the ability to get

off-site in the Hamptons at the vacation home of their president a guy named Gary Cohn the lore of this origin story of Marcus is that they came from this meeting and decided we're going to try a consumer banking we're going to take our huge balance sheet and we're going to make Headway into this business that we don't have any exposure in today so we're not going

to cannibalize any of our existing businesses but we're going to go after you know the Jake Morgan's in the Bank of Americans of the world that was in 2014 fast forward to 2016 that's when they roll out a thing called Marcus and so the thought was should we make a bigger deal of this how big does this need to be in order to move the dollar

Goldman Sachs and David Solomon becomes CEO in 2018. one of the first things he decides to do is he decides to take the business which had been sheltered he decides to put it inside Investment Management Division and private wealth management these are hugely mature at scale businesses that have a lot of different concerns and interests than Marcus and so David Solomon felt strongly that those businesses

should all be in the same division because they all serve the individual but they continued to plow along and in 2019 unveil the Apple card today we're introducing a brand new service and we call it Apple card [Music] now the Apple card was a huge coup for them since they didn't have credit card relationships before and on top of that this is the biggest of the

big Tech this is this is Apple this is hardware this is hundreds of millions of iPhone users foreign years ago when we had our first investor day we laid out a clear strategic plan for the firm we laid out a plan to invest in our core businesses we pointed to four areas that we thought were interesting opportunities for the firm to grow Asset Management Wealth Management

transaction Banking and also consumer banking you know you have to remember in 2021 golden sacks is on top of the world they're leading Investment Banking League tables they're making money hand over fist through IPOs specs merger deals so at this point the thinking is look we're making tons of money and this thing which isn't highly valued by investors let's take some of this money this Investment

Banking deal money and put it into and create some recurring revenues in consumer so they wanted to accelerate not decelerate the money they were putting in the markets we said we'd run the firm more efficiently and we put out some targets and metrics to track our performance over time so the people I talked to at the time who were there to say the word from everybody

from David Solomon and on down was go go let's let's put more money into this let's accelerate they start planning more money into Marcus at exactly the wrong time because when the market turns in 2022 all of a sudden there's much more sensitivity to expenses which we're ballooning so as Apple card was ramping up and as they were adding tons of cuts customers what Goldman had

failed to appreciate was that they would have to set aside funds for loan losses I think the consumer business was a distraction totally off-brand from what I know about gallman and if they were going to do it they needed to do it at a much higher and more prestigious level than they did and for the market you know the knock against Goldman Sachs was always from

the beginning is this is not in your DNA so you may think you're going to disrupt consumer banking but when the going gets tough and the cycle turns you're going to lose heart and you're going to cut and run at the end of the day that's exactly what happened [Music] the thinking was if you guys can handle Investment Banking and Advising and doing the most complex

transactions in the world and if you can emerge from the financial crisis unscathed well you could probably handle retail banking because that's probably easier in reality you know they're totally two different skill sets quite often the people who are good in retail banking have been doing it for decades and there's a lot of consistency in the talent pools there where you just have a huge deep

bench Goldman didn't have that and and one of the criticisms from the beginning was you know this is not in our DNA we're not going to be able to do this well and we're not going to be able to hire enough of the right people to make it happen I think we tried to do too much too quickly and as a result our execution in some

areas of this wasn't good and so it's really the difference between having dozens or perhaps hundreds of clients you know in the case of personal wealth management private wealth management or in the case of investment banking having millions of customers all of whom do a little bit with you and perhaps have a little money with you or are borrowing a little bit of money and doing

that at scale in a way that that makes sense which is very difficult there are parts of it that we executed very well we built a deposit platform that works very well it's attractive it's good for consumers we've built a big deposit base which is hugely strategic for us I think the important thing that you do is you look at what you've done you learn you

adapt you correct you move forward the only thing that's fair to say that David Sullivan has a smaller margin for error today Banking and trading is an A plus business but it's a cyclical business and that's why they've been trying to diversify away from that but everything that's kind of happening in consumer banking it's been a mess it's disappointing to hear David talking about how you

know they misunderstood the competitive Advantage you think about it right that's what they advise clients on competitive advantage and so it looks like they won't even take their own advice when it comes to their consumer banking business and it's also fair to say that he's used up some of his credibility in the last couple years going so all in on a business that he really cut

bait on very quickly but I'd also give a grade of e or fail to the consumer business they talk about breaking even in their third business line by 2025 you know that would be nine years after we first launched the consumer expansion and that didn't sit well with many in the room doesn't sit well with me to be fair to him he's done a very good

job with the main core businesses of Goldman Sachs which are trading and Investment Banking our market shares across our Core Business continue to be excellent and they've actually grown and our Banking and markets business we've increased our market shares by 350 basis points our wallet share over the last few years of course we haven't executed perfectly on everything but when I look across the spectrum of

work we've done to grow The Firm to improve the way we serve our clients to strengthen our business we've made a lot of progress now the contrary to that is you could say those businesses are run by veteran folks they had a lot of momentum and that anybody really running that operations would do more or less what he's done which is to improve market share in

the last couple years and just take that business forward it really is you know on the things that are hard to do like getting to new businesses that perhaps somebody should be graded on and that didn't go that well that would be the critique during David's tenures I mentioned the stock has effectively doubled I don't think people necessarily love him but I also think there are

a lot of people with bows and arrows out there trying to knock them off and I think that's unjustified just like anyone else at Goldman Sachs you have to earn your job every day so if we come back in the next year or two and they're behind on their targets and morale is not good and there's turnover but there's not that turnover today but if you

don't get your targets for too long then you're under the microscope a lot more on the other hand if if they can get toward their targets eliminate some of those losses they have in consumer um then you know winning would cure all if they have the right strategy and the right leadership I'm convinced this organization can do anything it wants Goldman Sachs is you know one

of the greatest Capital Market players for the last 154 years and just go back to your day job and do what you do best foreign