Goldman’s big bet

This is an audio transcript of the FT News Briefing podcast episode: ‘Goldman’s big bet’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, March 1st. And this is your FT News Briefing.

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Goldman Sachs is going all in on asset management. Nigeria’s opposition parties are calling for a redo of the presidential election. And a London house is expected to sell for a record amount. One of its current owners is a member of the Saudi royal family. I’m Marc Filippino, and here’s the news you need to start your day.

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Goldman Sachs held its annual investor day in New York yesterday and a lot happened. CEO David Solomon admitted that the bank made a mistake going into consumer banking. And he said that he’s exploring strategic alternatives for parts of Goldman’s consumer platform division. Goldman’s stock price ended the day down close to 4 per cent. The FT’s US banking editor, Josh Franklin, was at investor day and he joins me now. Hey, Josh.

Joshua Franklin
Hey, Marc.

Marc Filippino
So, Josh, let’s start with the consumer banking division at Goldman. Why has this become such a problem?

Joshua Franklin
So let’s rewind back to when Goldman first launched its consumer banking effort, which was way back in 2016, before David Solomon was even CEO of Goldman Sachs. And they went into consumer banking by launching this retail digital bank called Marcus, which is named after one of Goldman’s founders. And this was meant to be this business that was going to take advantage of Goldman Sachs becoming a kind of formal bank after the financial crisis. And it allowed them to start gathering cheap deposits, which they could use to help fund themselves. Now, here we are, you know, seven years later, and the consumer business has morphed into all sorts of different things at Goldman Sachs. You’ve still got Marcus there, which is a business that they do want to keep. But now you have credit card partnerships with Apple. Now they, you have this point-of-sale lender that they acquired last year in GreenSky, which helps fund home improvement loans. So it’s just become this big business. And when you’re making these consumer loans, they can be quite expensive in that you have to provision money to cover for potential losses for these loans for regulatory reasons. And so it’s meant that these businesses have racked up really big losses of more than $3bn of losses for Goldman over the last three years. So investors really have not been keen on them. And I think that’s why, you know, there’s been this gradual evolution at Goldman Sachs around their consumer business until ultimately now they’re at the point where they’re exploring strategic alternatives, which essentially means it’s up for sale.

Marc Filippino
So, Josh, were there any specifics about how Goldman would handle the consumer platform division?

Joshua Franklin
So part of it is kind of pared back ambitions. So this Marcus business, this online retail bank, they’re still gonna keep that. It’s gonna be a diminished version of what they have been building towards over the last few years. But they will still have this kind of online retail bank in Marcus. But the other parts of the business, you know, the credit card partnerships that they have with Apple, point-of-sale lending with which they have with the GreenSky deal that they did last year, those are things now where they’re exploring these strategic alternatives which could ultimately lead to a restructuring or an all-out sale of parts or all of these businesses.

Marc Filippino
Now, yesterday, before investor day started, Solomon went on CNBC and he said this.

David Solomon
Well, when we laid out a plan three years ago, we talked about a number of avenues for growth and opportunity. And I think it’s absolutely fair that our execution around the consumer platforms hasn’t been to the standard we’d like it to be. But the real story of opportunity for growth for us in the coming years is around asset management and wealth management.

Marc Filippino
And Josh, that makes sense, right? I mean, we’ve talked about how Goldman Sachs and Morgan Stanley have had very different fourth quarters because of Morgan Stanley’s approach to asset and wealth management. Is the pivot now for Goldman enough to save Solomon and really make a difference?

Joshua Franklin
Yeah, that really was the goal for Goldman yesterday, to change the narrative around the stock for all these people focusing on the consumer business and to focus instead on the opportunities in asset and wealth management. The struggle for Goldman is that these businesses are still too small to really move the needle for investors. Investors do really like these businesses. They do command higher multiples than Goldman’s legacy investment banking and trading businesses because they’re seen as being less volatile. But even if Goldman hits the fundraising targets that they have and the financial targets that they have for asset and wealth management over the next few years, analysts really don’t see that making a meaningful dent in the revenue shift, the revenue mix, inside Goldman Sachs. They still see the bank earning a majority of their profits from investment banking and trading. And for better or worse, investors just don’t ascribe these businesses a high stock market valuation.

Marc Filippino
Josh Franklin is the FT’s US banking editor. Thank you, Josh.

Joshua Franklin
Thanks, Marc.

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Marc Filippino
Nigerians went to the polls over the weekend for the country’s presidential election. Bola Tinubu has been declared the winner but he’s fighting accusations of election fraud.

Bola Tinubu
Honestly, I have faith in the system. It is not a problem to accept the results of the free and fair election.

Marc Filippino
Two opposition parties say there has been widespread voter fraud and now they’re calling for a fresh election. The FT’s West Africa correspondent Aanu Adeoye says that probably won’t happen, though.

Aanu Adeoye
Before the election, the Nigeria’s Independent National Electoral Commission, called Inec, said that it would upload results from all the 177,000 polling units across the nation immediately after the polls closed. But what we have now is that that did not happen. Inec has apologised for the delays saying it has had trouble scaling the technology to a nationwide exercise. But the parties are arguing that the delay between uploading results has allowed time for their opponents to rig the election essentially.

Marc Filippino
Could these calls for a rerun have any effect on the stability of Nigeria’s democracy?

Aanu Adeoye
I think one of the problems that analysts are raising right now is that regardless of who wins, they will face questions about the credibility of the election. OK, we have the opposition parties calling for a rerun, but we’ve also had more sober observers like the EU observer mission, a couple of US-based organisations, who have given scathing opinions over how Inec conducted this election. Some of them have said that Inec has not been transparent in terms of its communications during this process and that has dented people’s confidence in the vote.

Marc Filippino
Aanu Adeoye is the FT’s West Africa correspondent.

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One of London’s most expensive houses is going on sale and agents hope it will fetch a record price. It’s called “the Holme” and it’s listed for £250mn. I talked to Josh Oliver, the FT’s newly appointed property correspondent. You might remember him from his days on the crypto beat. He explains why this mansion in London’s Regent’s Park is such an unusual sale.

Joshua Oliver
I mean, this is a building that people may well have caught a glimpse of if they are passing through that park in central London, one of these big white-painted mansions that are some of the most desirable residences in London.

Marc Filippino
Josh says there’s a pretty unusual story behind why the property is for sale in the first place.

Joshua Oliver
According to public records in the UK, one of the beneficial owners of this property via some holding companies is Prince Abdullah bin Khalid bin Sultan al-Saud, who is a member of the Saudi royal family and currently representative of Saudi Arabia to the United Nations in Vienna. So you know, also a politically connected person, and the house is being sold as a result of it falling into receivership. So there’s a loan security at the house, and that has clearly gone sour and that has prompted receivers to initiate a sale of this incredibly valuable property in order to get that money back.

Marc Filippino
So who’s gonna buy it? Well, Josh says that’s the key question on everybody’s mind.

Joshua Oliver
I mean, on the one hand, this is one of the most, you know, remarkable houses in London, and it can command a huge price. But at the same time, it’s gonna be impossible to sell this in a kind of low-key, private way. I mean, we won’t know for sure until we see how the sale plays out. But it is certainly the case that there is ever more pressure in the London market and politically to identify who are the ultimate owners of all of these incredibly valuable properties across London. And, you know, the days when it was accepted that these would be shielded behind shell corporations are potentially numbered because of the political context. And there’s more and more drive towards having some understanding of who it is who actually owns London.

Marc Filippino
That’s the FT’s property correspondent, Josh Oliver.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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