Goldman Sachs CEO David Solomon has confirmed plans for asset and wealth management, pledging to stem losses in its consumer lending and financial technology businesses by 2025.
In its investor day presentations, Goldman reiterated old targets, urged shareholders to look at three years of results rather than disappointing 2022 financial numbers, and laid out a roadmap for selling the bank’s volatile equity investments.
Solomon will address shareholders in New York on Tuesday morning amid internal disagreements over job cuts and a failed foray into consumer banking.
He is trying to convince investors that he can turn Goldman into a bank that generates predictable earnings and therefore deserves a higher stock valuation. Goldman’s legacy trading and investment banking businesses, which account for most of its profits, have the effect of being too cyclical.
“The real growth story for us is asset management and wealth management,” Solomon told CNBC Tuesday morning. “We have a real opportunity to continue to make the company more sustainable.”
Solomon’s three-pronged path to a more durable Goldman: operating more efficiently, gaining market share in investment banking and trading services, and expanding into asset and wealth management to generate stable fees valued by investors.
The pitch is similar to what was laid out at the bank’s first investor day in 2020, though it now lacks the emphasis on consumer banking. Goldman decided last year to scale back its “Main Street” ambitions through the Marcus brand after shareholder unrest over mounting losses.
Solomon insisted on an average return on equity, a key measure of profitability, of 15 to 17 percent. That topped an earlier target of more than 14 percent, but still lags behind old rivals Morgan Stanley and JPMorgan Chase, which currently trade at a higher stock multiple than Goldman.
Goldman maintained a gross fundraising target of $225 billion through 2024 for its asset management alternatives, along with more than $10 billion in enterprise-wide management and other fee income.
The bank also disclosed that it now expects the financial technology business, rebranded as Platform Solutions – which includes its credit card partnerships and GreenSky, the point-of-sale lender that Goldman acquired in 2022 – to be pre-tax by 2025 will break even. The map could help allay shareholder concerns about the division, which is set to lose $1.7 billion in 2022.
“We were trying to do too much,” Solomon told CNBC. “In the places where we fell short, we will reflect and learn.”
Goldman detailed its plans to sell its so-called on-balance sheet investments, a holdover from an era when the bank bet on equity in areas such as private equity and real estate.
It said it had about $30 billion in legacy investments at the end of 2022. It aims to reduce these to less than $15 billion by the end of 2024 and sell them all in the next three to five years. These revenues are planned to be replaced over time by management and performance fees from the investment of third-party funds.