Goldman Shuffle Aims to Reduce Reliance on M&A
Overhaul is meant to make firm less dependent on boom-and-bust Wall Street businesses; investment-banking revenue fell 57%
Goldman Sachs Group Inc. GS 2.33% is so dependent on its investment bank that a slump in deal making sent third-quarter profit down 43%—by far the steepest slide among its big-bank peers.
A broad restructuring announced Tuesday is meant to change that: Goldman will fold investment banking and trading into one unit and merge asset and wealth management into another—giving it a higher profile at the same time.
For years, Goldman has wrestled with what it should be, and how it should buffer itself against the sort of volatility that cropped up in the third quarter, keeping deal makers on the sidelines and drying up the market for initial public offerings.
The restructuring, reported late Sunday by The Wall Street Journal, reflects Chief Executive David Solomon’s broader effort to shift Goldman’s focus away from the high-risk, high-reward Wall Street units that have long defined it and toward businesses that generate steady fees no matter the environment.
Mr. Solomon said that the new structure would strengthen the bank’s core businesses, diversify its products and services and allow it to “operate more efficiently as we drive higher, more durable returns.”
Investment banking and trading have long been Goldman’s power centers, and those units generate huge profits in times when markets reward risk-taking. But the businesses are prone to big swings in choppy markets. Goldman’s investment-banking revenue fell 57% in the third quarter; trading revenue rose 11%.
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Building out the firm’s wealth- and asset-management offerings is key to Mr. Solomon’s strategy to smooth out the bumps. Managing wealthy people’s money and overseeing funds for pensions and other deep-pocketed institutions is more profitable than other financial services, and it usually doesn’t put the firm’s balance sheet at risk.
Asset-management revenue fell 20% to $1.82 billion in the third quarter. Wealth-management revenue was flat at $1.63 billion.
The bank tapped Marc Nachmann, the firm’s co-head of trading, to run the combined business.
Mr. Nachmann joined Goldman’s investment-banking division in 1994. He later served as co-head of the financing group and then co-head of the whole division—the two posts Mr. Solomon held before his ascent to president. Mr. Solomon appointed him to help run the bank’s trading business in 2019.
Viewed internally as one of the firm’s most-skilled operating executives and a favorite of Mr. Solomon’s, Mr. Nachmann will now bring his talents to a third major business.
His new role will pose different challenges than his last two.
Goldman’s asset- and wealth-management businesses haven't been viewed as the firm’s core strengths, and have grown in recent years in part through a string of acquisitions. The firm’s senior executives have signaled they are open to more deals, bringing an element of complexity and operational risk.
At the same time, the firm is still working to translate its successes in investing its own balance sheet in private markets to investment funds that appeal to pensions and other outside clients. Earlier this year, Goldman said it aimed to bring in more than $10 billion in management fees by 2024, with at least $2 billion coming from so-called alternative investments such as private equity and credit.
The reshuffling marks a major shift for Marcus, Goldman’s consumer business. Goldman created Marcus several years ago, offering savings accounts and loans to the masses. Uptake has been slow: The unit’s revenue rose 95% in the third quarter to $744 million, but it accounted for just 6% of the bank’s total revenue and has yet to turn a profit.
The consumer business will be parceled out, with much of it folded into the new asset- and wealth-management unit. Under Mr. Nachmann’s direction, Goldman is planning to find new ways to deliver banking services to individuals through the firm’s wealth advisers and its workplace platform, which manages corporate employees’ investing and stock-planning services.
Some pieces of Marcus, such as its card partnerships with Apple Inc. AAPL 0.94% and General Motors Co. , will go into a third new unit called Platform Solutions. That unit will also house Goldman’s financial-technology platforms and specialty lender GreenSky. Stephanie Cohen, who is the current co-head of consumer and wealth management, will run the business.
Dan Dees and Jim Esposito, the current co-heads of investment banking, will run the new banking and trading operation alongside Ashok Varadhan, who currently is co-head of the trading business. Julian Salisbury, the co-head of asset management, will serve as the unit’s chief investment officer. Rich Friedman will continue to be the asset-management division’s chairman.
They will all report to Goldman President John Waldron.
Goldman’s new structure will more closely resemble that of big-bank peers such as JPMorgan Chase & Co. and Morgan Stanley, which have combined trading and investment-banking businesses.
Profit decreased at all of the big U.S. banks this quarter. While revenue fell at both Goldman and Morgan Stanley, it rose at JPMorgan, Citigroup, Bank of America and Wells Fargo & Co., all of which have closer ties to Main Street.
The majority of the banks—including Goldman—topped analysts’ expectations for both earnings and revenue. And while executives sounded a warning about where the economy could be headed, their results confirmed that, for now, individuals and businesses are still borrowing at a healthy rate.
Consumers increased their spending on credit cards, including on more discretionary items such as travel and leisure, though big-ticket loans such as mortgages and auto loans fell off a cliff.
Like everyone, the bank CEOs are parsing competing data about where the economy is headed next.
Mr. Solomon told analysts that the firm’s client companies would like to see more economic certainty before committing to longer-term plans.
“The world is fragile at the moment,” he said, citing high inflation and energy-price shocks. “It’s uncertain, and we’re operating through that lens.”