March 22, 2023

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Goldman plans major reorganization to combine major units – sources

Goldman plans major reorganization to combine major units - sources

LONDON/NEW YORK (Reuters) – Goldman Sachs (GS.N) A source familiar with the matter told Reuters that the company is planning a major reorganization to merge its largest business into three divisions while merging its investment and commercial banking businesses into one unit.

The plans are expected to be announced on October 18 along with Goldman’s third-quarter earnings. The source said Marcus, Goldman’s consumer banking business, will be absorbed into the wealth unit, confirming an earlier publication in the Wall Street Journal. Report.

A Goldman Sachs spokesman declined to comment.

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This is the biggest change since the company’s investor day in early 2020 when it outlined plans for four core units: Investment Banking, Global Markets, Consumer Management, Wealth and Asset Management.

It’s a head scratcher,” said Mike Mayo, a banking analyst at Wells Fargo. “Right now, there are more questions than answers for Goldman Sachs as it relates to a potential restructuring.”

The move comes as the Wall Street giant seeks to increase its income from the fee-based business and reduce its dependence on volatile trading and investment banking revenues. The changes also signal the decline of Marcus, the consumer unit, after CEO David Solomon expressed high ambitions to build a major digital bank.

“This could be a way to put Marcus back in as a way to downplay his importance as an investment opportunity,” Mayo said.

Solomon, who became CEO in 2018, has sought to expand Goldman’s footprint in retail banking since his early days of leadership.

But the consumer banking unit launched in 2016 has struggled to gain momentum and suffered from delays. Marcus has yet to launch a checking account that was scheduled for this year. In the middle of the year, the bank internally projected that Marcus’ losses would accelerate to more than $1.2 billion in 2022, for a cumulative loss of more than $4 billion, Bloomberg reported. Goldman declined to comment on the loss.

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Solomon said the company could generate more than $4 billion in revenue by the end of 2024.

The bank said in its annual report that net revenue in its retail banking unit grew 23% to $1.49 billion in 2021, reflecting higher credit card balances and deposits.

Marcus offers digital banking products such as loans, savings and certificates of deposit. It also offers credit cards through a partnership with Apple Inc (AAPL.O).

The bank said the consumer business serves more than 14 million customers and has more than $100 billion in deposits with more than $16 billion in card and loan balances.

Comprehensive management of Goldman Sachs portfolios ‘on its toes’

The joint investment and commercial banking group will be overseen by Dan Dies and Jim Esposito, who are currently global co-heads of investment banking for Goldman, and Ashok Varadan, now co-chair of the global markets division, according to Bloomberg.

The report said Mark Nachman, global co-head of the bank’s global markets division, will move in to help manage its joint asset and wealth management arm.

The report added that Marcus will become part of the asset and wealth management unit.

“This is a way for Goldman Sachs to keep its management team on alert and build the strength that defines Goldman,” Mayo said.

The bank’s regulatory overhaul comes shortly after the global job cuts in September, which could have affected hundreds of bankers.

In the second quarter, Goldman Sachs reported a 48% drop in profit that beat expectations as fixed income and commodities trading rose.

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Like its Wall Street rivals, the bank is expected to post a sharp drop in third-quarter net profit as investment banking revenue was hit hard by sluggish deal-making.

Goldman is expected to post a net profit of $2.77 billion in the third quarter, according to analyst forecasts compiled by Refinitiv, down from $5.38 billion a year earlier.

In a recent report, Barclays said that due to the challenging operating environment, Goldman is closely re-examining all future spending and investment plans to ensure the best use of its resources.

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Additional reporting by Pamela Barbaglia in London, Lavanya Ahir and Akrit Sharma in Bengaluru, Selena Lee in Hong Kong, Saeed Azhar in New York; Editing by Sherry Jacob Phillips and Muralikumar Anantharaman

Our criteria: Thomson Reuters Trust Principles.