Goldman Sachs doesn’t want to be everybody’s bank, but it has to be somebody’s

Goldman Sachs GS 2.29%

Group Inc. has admitted defeat in its ambitious plan to be everyone’s bank. Now it has to figure out how to be a bank for someone.

CEO David Solomon told analysts and shareholders this week during an in-person investor day at headquarters that the firm is scaling back on banking consumers and their checking accounts and credit cards. Instead, he said, growth will come from managing the wealth of institutions and the rich — a business that sheds fixed fees when markets are up or down.

Some investors have welcomed Goldman’s consumer retreat, having never bought into the idea that the storied Wall Street titan could become a friendly Main Street brand. Investors these days want to own shares in banks that they can tuck away in their portfolios and forget about – banks that have mastered the rudimentary work of deposits and lending.

Goldman, with its background in the boom-and-bust businesses of investment banking and trading, never quite fit the mold. It struggled to rebuild its credit card business after a splashy deal with Apple Inc.

Billions of dollars in consumer deposits were not used profitably enough. A long-awaited mass market checking account never materialized.

The effort resulted in billions of dollars in losses—a rarity for a firm accustomed to winning more deals than it loses.

Still, Goldman cannot go home again. The archetypal Wall Street trading powerhouse and investment bank — famously dubbed a vampire squid by Rolling Stone more than a decade ago — no longer exists. This is thanks in part to post-crisis regulations such as the Volcker Rule, which prevented banks from betting their own money on proprietary, or “prop,” trades.

Goldman emerged from the financial crisis transformed into a going concern bank, a status regulators insisted on so it could access emergency funds from the Federal Reserve. It has spent the last 15 years figuring out how to become one.

Now Mr. Solomon’s task is to convince investors that Goldman can thrive without becoming a jack-of-all-trades like JPMorgan Chase & Co. or Bank of America corp.

The challenge: produce more of the kind of stable, recurring income that bank investors want.

“Our asset and wealth management platform is the key driver of growth,” said Mr. Solomon.

Goldman Sachs CEO David Solomon is leading a consumer banking turnaround.



The back-and-forth in Goldman’s post-financial crisis strategy has a long history. Goldman did not initially want to develop into a major retail or commercial bank, but executives began to explore a shift as trading revenues fell. A bank push involved collecting deposits from account holders, which offer more stable, affordable funding for the bank that is not exposed to market fluctuations. Previously, it had financed itself by using holdings of higher-risk assets as collateral.

After all, cheap deposits and lucrative credit card loans had driven JPMorgan and Bank of America to far better shareholder returns between 2012 and 2020.

“We are a bank. It’s not hypothetical, then-CEO Lloyd Blankfein said in an interview with The Wall Street Journal in 2012. Goldman was “backing a big opportunity.”

The move to a more regulated bank holding company boosted Goldman’s stock, which doubled in 2009 after hitting a low close of $52 in November 2008. Goldman’s stock now trades at over $350 a share.

Still, Goldman’s return on equity, or how much profit it made on its capital, stalled. It fell from north of 30% in 2007 to about 11% in 2012, 2013 and 2014.

So it made perfect sense for Goldman to finally try to build up its bank. It added private banking services to high-net-worth clients. It pushed out to everyday consumers in 2016 with online high-yield savings accounts, then expanded into Marcus-branded lending (the first name of a company founder) and credit cards via partnerships with Apple and General Motors.

It acquired a company called GreenSky, which specialized in giving loans to people to do home improvement projects. There were plans to offer checking accounts, the basic building block of banking.

But the sum of these efforts did not translate into significantly higher returns or valuations for Goldman’s shares.

When the pandemic hit, supply chain snarls and rising prices drove a surge in commodity trading. The Federal Reserve’s move to fight inflation revived the moribund business of trading around interest rates. The end of free money has made funding trade customers more difficult, but also quite lucrative for the remaining players.

All of this sparked a trading renaissance, and Goldman pounced. Although its consumer banking efforts received far more public attention, Goldman had also for years refocused its Wall Street business around the largest accounts on Wall Street, offering clients direct access to some of the “secret sauce” behind its trading prowess. . That means it allowed them to use more of their internal tools, such as powerful databases that analyze markets and manage risk. It had greatly expanded its business of financing its customers.

Company bosses, meanwhile, flooded the market with deals and share offers. Goldman’s investment banking revenue rose in 2021, boosting the bank to over 20% return on equity for the first time in more than a decade.

Even a down year for deal making last year was offset by another big year for the bank’s trading activities. Together, the two businesses produced a return on equity of over 16% in 2022, compared to less than 9% in 2019.

The result is that Goldman now has a banking-and-markets unit that may never generate the outsized profits that the Volcker Rule “prop” trading desks did. But the trade-off is that the device can be more stable and less risky.

Employees at the Salt Lake City office of Goldman Sachs’ consumer banking business, called Marcus, in 2018.


Briana Scroggins for The Wall Street Journal

Against that backdrop, there may be less urgency for Goldman to look to consumer banking to achieve the kind of predictable returns that shareholders want. Goldman’s stock has far outperformed the S&P 500, as well as JPMorgan and Bank of America, since the start of 2020.

Still, Goldman falls short by at least one yardstick: its lackluster performance compared to Morgan Stanley.

Morgan Stanley’s years-long development didn’t get the attention Goldman’s got, but its own wealth management allowed the company to build a huge business that generated steady management fees. Morgan Stanley bought consumer trading platform E*Trade just before a boom in retail trading. Morgan Stanley shares have had a total return of over 110% since the start of 2020, compared to over 65% for Goldman.

Morgan Stanley’s New York headquarters, 2022. The firm has built a wealth management business that generates steady management fees.


Victor J. Blue/Bloomberg News

To close that gap, Goldman must again count on being a bank. Instead of turning to Main Street or just looking to Wall Street, Goldman is looking somewhere in the middle—the managers of America’s pensions, pensions, insurance funds and college scholarships, and to the rich and wealthy. Its biggest Plan for growth is now with its asset and wealth management activities.

It sells its main higher-risk, higher-reward investments in so-called alternative assets, such as stakes in private companies. This will free up more of the capital to reallocate to potentially less lucrative but far more stable things like loans. In addition, making the same types of alternative investments, but with client money, is a path to stable management fees that investors value very highly. Goldman’s asset-and-wealth unit generated about $8.8 billion in management fees last year. The goal is to reach 10 billion dollars.

If the bank ends up making fewer loans to average consumers, it can market more loans to its wealthier individual customers. Only around 30% of US private wealth clients currently borrow from the bank. It can use its deposits to fund more lending and funding to institutional and Wall Street clients, which have historically been more the territory of JPMorgan or Bank of America. Goldman is also building a transaction banking business, which involves handling day-to-day corporate bank accounts and payments, for large companies such as American Airlines Group Inc.

Investors may feel that their money has been misapplied on consumer banking mishaps. But if Goldman is now ready to finally answer definitively the question “what is a bank”, then it has been a useful identity crisis.

Write to Telis Demos at

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