By Liz Hoffman and Peter Rudegeair
Two dozen of Goldman Sachs Group Inc.'s most profitable traders
were kicked off their desk last year to make room for the swelling
ranks of the firm's Main Street lending arm.
Harit Talwar, the newcomers' Allbirds sneakers-wearing boss,
ribbed his counterpart, a Briton named Julian Salisbury who favors
crisp suits and ties knotted in a double Windsor. "Thanks for
making all the money we're spending," he said, according to a
person who heard the exchange.
With its core businesses of trading and deal-making on the wane,
Goldman has pushed into savings accounts and credit cards. Yet its
makeover is a money pit -- and is challenging its identity as a
titan of high finance.
Goldman's new consumer bank, which operates under the brand
Marcus, has lost $1.3 billion since launching in 2016. It spent
heavily to buy startups and cloud-storage space, hire hundreds of
techies, and build call centers in Utah and Texas. Loans have gone
bad at a higher rate than that of rivals.
Marcus launched without a collections team to chase down
delinquent borrowers, resulting in early loan losses, people
familiar with the matter said. A credit card developed with Apple
Inc. was a coup, but a costly one: Thousands of engineers across
Goldman were diverted to finish it in time for an August debut,
delaying other projects. Apple ads for the card carried the phrase:
"Designed by Apple, not a bank" -- a line that didn't appear in a
giant banner ad in Goldman's lobby this fall.
It's still early days, but Goldman has a lot riding on getting
this right. The firm brings in less revenue than it did in 2010.
Its stock trades below that of rivals with big consumer businesses,
which are now in vogue with investors for their predictability and
low-cost retail deposits.
Mr. Talwar's joke to Mr. Salisbury captures the tension between
Marcus and the dealmakers whose money it is burning through. Even
those who buy into Chief Executive David Solomon's vision of a more
well-rounded Goldman still wince as their bonus checks shrink, as
they likely will again this year. Dozens of long-tenured partners
are leaving.
The tension cuts both ways. Coders wooed from Silicon Valley had
their requests for MacBooks rejected by Goldman's compliance
department, employees said. Mr. Salisbury's traders, edged into a
corner of the 26th floor of the bank's headquarters, complained the
bathroom had become too crowded.
A poll commissioned by Goldman this spring asked Marcus
customers whether the brand was "downmarket," a heartburn-inducing
word at a firm known for advising billionaires and big
companies.
Meanwhile, the kind of loans Marcus offers are the first to go
bad in a recession and aren't backed by collateral, as home
mortgages are. Goldman pulled back on consumer lending this year
after losses were higher than expected, people familiar with the
matter said.
Executives say Marcus has helped lure tech talent to the firm
and has proven that Goldman can stand up new businesses. They also
point to the success of Marcus's savings accounts, which have
gathered $50 billion in deposits, a new type of low-cost funding
for the bank.
"We're developing muscles we didn't know we had," said Omer
Ismail, who runs Marcus in the U.S.
A hat bearing the letters MVP hangs on his office door, a gift
from the team. At the old Goldman, it would have meant "most
valuable player." At the new Goldman, it means "minimum viable
product," tech-speak for a new offering that is ready to be
launched -- if just barely.
Profit engines
For most of its 150-year history, Goldman dominated the high end
of finance. It virtually invented institutional stockbroking in the
1960s and the modern initial public offering in the 1980s. It
brokered $1.3 trillion worth of corporate mergers last year.
Those profit engines have sputtered since the financial crisis.
New regulations have reined in its securities traders, who earn
less than half the revenue they did a decade ago. Goldman once
invested billions of dollars of its own money into deals; that,
too, is off-limits now.
Goldman's stock is stuck at 2014 levels. Investors have flocked
instead to rivals such as JPMorgan Chase & Co. and Bank of
America Corp., which churn out steady profits from lending and
money management.
Marcus, hatched at a 2014 gathering of executives in the
Hamptons, the exclusive New York enclave, was meant to get the firm
growing again. With a blank canvas and a generous budget,
executives believed they could pick off business from slower-moving
rivals.
Marcus debuted two years later to make personal loans of a few
thousand dollars. It also offered online savings accounts that
customers could open with as little as $1.
Naming the startup after the bank's 19th-century immigrant
founder gave it some distance from the Goldman brand, still tainted
by its role in the 2008 meltdown. Uncomfortable memories of the
crisis informed other early decisions.
Executives worried that aggressive debt-collection efforts would
dredge up a predatory image it had spent years trying to stamp out.
So Marcus launched without a team of specialists to contact
delinquent borrowers and try to recover what they owed, people
familiar with the matter said. When the first borrowers fell
behind, Goldman lost more money than it should have, those people
said.
The bank now has dedicated collections staff that is specially
trained, a spokesman said.
It still has higher loan losses than rivals. Goldman wrote off
$156 million in 2018 and another $155 million in the first six
months of 2019, according to public filings. In the year ending
June 30, its losses amounted to 5.5% of its loan book, higher than
peer Discover Financial Services and above the 4% estimate
previously given by Goldman executives.
Though the bank was wary of being heavy-handed in collecting
debt, in at least one case it overstepped.
Last August, an Oklahoma woman filed for bankruptcy with debts
that included a $19,894 Marcus loan. As is standard in personal
bankruptcies, the court barred Goldman from attempting to collect
the debt.
Goldman contacted her nine times over the next two weeks seeking
repayment, even after her lawyer sent another letter notifying the
bank that she had filed for bankruptcy, the woman alleged in court
filings.
Goldman settled the case.
'Not a bank'
Goldman doesn't have a brand that consumers know or physical
branches to pull them in off the street. So it is looking for other
ways to get the word out, acquiring or partnering with well-known
brands that can bring their own customers and cachet.
It is pitching corporate human-resource officers on
"Marcus@Work," which offers financial education to employees. It is
also in talks with AARP, the retiree organization, to provide
banking services to its 38 million members, people familiar with
the matter said.
Last year it acquired Clarity Money, a personal finance app with
more than 1 million users. It is one of several suitors eyeing
GreenSky Inc., an online lender that is exploring a sale, according
to people familiar with the matter.
AARP and Goldman declined to comment. GreenSky didn't respond to
a request for comment.
Finding customers through well-known partners spares Goldman the
hassle of building a network branches and sending out millions of
pieces of direct mail, as Marcus did in its early days.
But it casts Goldman as a vendor that, in most cases, needs
those partners more than they need it.
That imbalance was on display in its partnership with Apple to
launch a credit card, Goldman's first. The cost of beating out
other banks was accepting a number of demands from Apple, which is
famously design-obsessed and exacting in its dealings with
partners, according to people familiar with the matter.
Goldman agreed not to charge late fees or sell customer data,
trading away two key ways that credit-card issuers make money.
Apple wanted control over the monthly statements sent to
cardholders, pushing for jargon-free disclosures and its own
signature font. Goldman's lawyers warned that veering from standard
industry language could invite regulatory problems, but the bank
compromised. Apple got its font and Goldman trimmed the fine
print.
Apple and Goldman declined to comment.
Apple initially wanted to charge everyone the same interest
rate, regardless of their credit scores, people familiar with the
matter said. On this point, Goldman pushed back. The card currently
charges rates between 13% and 24%.
When Apple unveiled the credit card on stage in March in
Cupertino, Calif., it did so with a zinger: "Designed by Apple, not
a bank." Mr. Solomon and other Goldman executives watched from the
audience. The same line was repeated in ads that Apple ran
promoting the card.
In a final snub, Marcus executives weren't allowed into a
Tribeca loft that served as Apple's command center in the days
leading up to the card's launch in August.
Even beyond the roughly $300 million Goldman spent to build it,
the Apple card was a drain on the firm's resources. When early
testing of the software this spring revealed a security
vulnerability, Goldman reassigned thousands of engineers from
around the firm to patch it, people familiar with the matter
said.
That put other initiatives months behind schedule, these people
said. A Marcus budgeting app and a digital wealth-management tool
that had been planned for early next year are now expected in late
2020 at the earliest.
Executives say the costs are justified by the chance to reach
hundreds of millions of iPhone users, a young, affluent bunch who
might be converted into Marcus customers.
In particular, Goldman wants their deposit dollars, a cheap
source of funding for the bank. Every $10 billion raised in
deposits saves Goldman $100 million a year, Goldman's chief
financial officer, Stephen Scherr said in April.
Identity crisis
Three years in, Goldman hasn't settled on an identity for
Marcus. It has been cast both as a buzzy Silicon Valley startup,
where coders sip kombucha from a tap at a WeWork office in San
Francisco, and as a nostalgic throwback, its logo a simple M on the
type of wooden sign that might swing from a small-town general
store.
The Goldman poll this spring asked customers to imagine Marcus
as a party guest. Is he a spunky teenager or a chill boomer? Does
he drive a minivan or a hybrid? Is he standing alone by the snack
table or DJ'ing? Is he playful, hardworking, cultured or cool?
Users earned Amazon gift cards for their feedback.
Even Marcus's products don't fit easily together. It pitches
personal loans to cash-strapped consumers who need money to fund
home renovations or pay off other debt. Its high-yield savings
accounts are marketed to wealthier individuals with cash lying
around. Marcus is courting tech-savvy consumers but doesn't have a
smartphone app.
Meshing Goldman's buttoned-up culture with an influx of new
talent has also been a challenge, executives say. Marcus has hired
some 500 people from rival consumer banks and another 500 from tech
companies, according to a spokesman.
Marcus acquired four tech startups including Clarity Money, a
personal-finance app whose founder, Adam Dell, zipped around
Goldman's headquarters on a hoverboard until it was confiscated by
legal staff after someone crashed it, people familiar with the
matter said.
Marketing staffers, drawn from companies including PepsiCo and
American Express Co., churn out jingles that aired on sports radio
this fall. ("I feel like a smart money guy," chimes a middle-aged
man, "now that my savings rate is high.")
As Marcus heads toward its third birthday, turnover has spiked
-- some of it welcome by senior executives, who say they have
learned more about what it takes to run a consumer business. Marcus
has had three heads of product in three years. Its chief risk
officer went to Barclays PLC. Darin Cline, the operations chief who
walked the call-center floor in Utah in cowboy boots, left earlier
this year.
As Marcus becomes more central to Goldman's future, executives
have discussed phasing out its name entirely, people familiar with
the matter said. Goldman is already killing off other brands it has
acquired in its push onto Main Street, including wealth manager
United Capital and 401(k) startup Honest Dollar, whose logo's shade
of cornflower blue Goldman spent months perfecting.
Mr. Solomon, according to people familiar with the matter,
favors a single brand on the firm's consumer products: Goldman
Sachs.
Write to Liz Hoffman at liz.hoffman@wsj.com and Peter Rudegeair
at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
September 28, 2019 00:15 ET (04:15 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Apr 2023 to Apr 2024