This was written prior to all the noise about Credit Suisse and Deutsche Bank. Goldman looks like a mighty oak next to those two Balsa Wood pickets. A quick word on the Credit Suisse and Deutsche Bank situations:
By all accounts, Credit Suisse and Deutsche Bank have plenty of capital to meet their regulatory needs. However, doubt is creeping in from the market and if that makes counterparties or clients skittish to the point where they don't want to do business with the banks, then that could create a domino effect.
Many people are comparing both banks to Lehman Brothers, whose collapse created added turmoil during the 2008 financial crisis. However, it is unlikely to be like that due to the lessons learned from letting Lehman go belly up. No one wants that again so although some people would love the excitement, other banks, governments, and regulators are more prepared to triage than they were 14 years ago if it actually came to that.
Goldman Sachs, the 150-year-old firm best known today for its investment banking, is currently battling bad news on multiple fronts. In addition to mounting losses at Goldman's digital bank, there are ongoing investigations by the Federal Reserve and the Consumer Finance Protection Bureau at the same time questions of leadership are being directed at the CEO. Young bankers also continue heading for the door. It's shaping up to be a spooky month for both Goldman and the market. Welcome to Q4 2022 everyone.
The image of GS is one of wealth, prestige, and invincibility. It’s the reason why people were so eager to believe the outlandish tweets from @GSElevator a few years ago. After a couple of years of social media memes, a pandemic, and former employees sharing details of in-fighting and unrest, that air of invincibility is wavering.
Goldman Sachs’ digital banking brand targeting mass-market clients, Marcus by Goldman Sachs*, was founded in 2016 but has yet to post a profit and losses are starting to make leadership squirm. Estimates through Q2 predict that the bank will report a loss of more than $1.2B in 2022, a hefty sum. Insiders expect that costs will be cut in the near future to stem the losses as the economy slows and Goldman’s main business, investment banking, sees reduced deal flow.
As revenue slows, all cost center operations will be under a microscope. It is unlikely Marcus is in a position to transition into a profit-making operation simply by cutting back on marketing or headcount. In addition to Marcus’ own losses from growing credit card delinquencies, which are among the worst for major card issuers, the acquisition of Buy Now, Pay Later firm GreenSky at the literal top of the fintech market foreshadows further problems. As the economy slows and prices rise for consumers, delinquency rates are expected to rise further.
Both the Federal Reserve and the Consumer Finance Protection Bureau (CFPB) are investigating Goldman Sachs for unrelated issues. This doesn’t include the fines from the SEC for a WhatsApp probe that recently wrapped up.
The Federal Reserve has been making repeated inquiries into the internal operations at Marcus. While details are in short supply, this investigation goes beyond the normal routine banking oversight and is adding additional pressure to the bank’s management.
The CFPB is zeroing in on the Marcus credit card division. As reported by CBS News, “the CFPB is examining a number of the company's credit card account management practices, including refunds, resolving billing errors, advertisements, and reporting to credit bureaus.” The majority of consumer complaints cited by the investigation are stemming from the Apple Card. Despite Goldman’s brand being nearly non-existent on the card and in the app, they are the ones catching all the flak while Apple ranked #1 in customer satisfaction two years in a row.
Being Chairman and Chief Executive of one of the most respected companies in the world pales in comparison to the love and adulation of the crowd. David Solomon, Goldman’s CEO also has a career as a DJ (DJ D-Sol) and has built quite a reputation with his side hustle (He DJed Lollapalooza earlier this year).
Not all the attention has been positive, however. Solomon found himself on the receiving end of some complaints from both the Goldman Board of Directors as well as anonymous insiders. He recently apologized for DJing a Hamptons party during the height of the pandemic lockdown in 2020 which only adds to the ire some have for his attention-seeking ways. Appearing in “Billions” and a Netflix documentary has caused some of Goldman’s leadership to think he is distracted by trying to elevate his own brand. Marcus has been one of the big bets during Solomon’s tenure, and if it remains unsuccessful in the marketplace, it will certainly detract from his legacy as CEO.
During the pandemic bankers across the industry got used to working from home, comping meals, and extra perks. Management is no longer as lenient. Most banks are forcing workers back to the office, cutting back on the extras, reducing the bonus pool, and generally putting their foot down. Goldman is now seeing workers exiting for other opportunities at a rapid pace.
Business Insider reported that through August, 11 junior bankers left the healthcare team alone, with six exiting on the same day. This only exacerbates the long hours and stressful environment as the work is now spread among fewer team members.
Workers throughout the country are losing their tolerance for hypocritical management and outlandish hours. Instead, many are choosing to decamp for greener pastures. Bankers, although possibly hardier than average, are no different. The negative attention lawsuits and investigations bring doesn’t make the work any easier. While Goldman remains a beacon of Wall Street excellence in the industry and in the eyes of the hundreds of thousands of eager applicants every year, these issues may take some slight shine off the solid gold exterior.
*Yes, “by Goldman Sachs” is actually part of the name which shows you what they think of themselves. If the losses continue, they might need to change it to “Marcus by Someone Who Doesn’t Work Here Anymore”.
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