After seeing its consumer banking efforts struggle immensely in recent years, the investment banking powerhouse Goldman Sachs (GS -1.55%) announced at its investor day in February that it would pull back from its consumer banking ambitions, which it launched in 2016.
The unit lost billions in recent years with its high expenses, and many shareholders do not appear to have been on board from the get-go. However, at investor day it was somewhat unclear how long it would take Goldman to wind down its consumer banking efforts considering the current environment.
But in its first-quarter earnings report, it is now much more clear that management is taking its medicine and moving to wind down most of the business sooner rather than later. That's good news for shareholders. Here's why.
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What actions did Goldman take in the quarter?
In the first quarter, Goldman sold about $1 billion of the $4.5 billion loan portfolio associated with its Marcus digital banking platform. Goldman also designated the rest of the Marcus loans as held for sale and marked the remaining loans to market. Both of these actions resulted in a $470 million loss in Goldman's private banking and lending division. However, this loss was mostly offset by Goldman releasing $440 million previously set aside for loan losses in the portfolio.
Goldman also announced that it has now begun the process of exploring a sale of its point-of-sale lending platform GreenSky, which the firm purchased in 2021 for $2.2 billion.
At investor day, executives at Goldman discussed exploring strategic alternatives for GreenSky, but it was unclear how long the process might take. While it's still a question of how quickly Goldman can offload GreenSky, I do think it's good news to see the company firmly say it is exploring a sale. At investor day, executives spent ample time discussing when they could get GreenSky to break-even profitability, which I think confused some analysts and investors.
Goldman does, however, seem to be sticking with its deposit and credit card platform businesses. The bank was already the banking partner for the consumer giant Apple (AAPL -0.20%), and helped the company launch a credit card. More recently, Goldman launched a savings account product for Apple card users that offers an annual percentage yield of 4.15%.
Goldman's CEO David Solomon said that the bank continues to focus on the deposit and credit card platforms, and that management sees "opportunities for us to do other interesting things strategically," but the goal right now is to get the card platform to profitability.
Why this is good news for shareholders
For one, it makes the strategic direction of the bank clearer, which may help regain the confidence of investors that were never on board with the idea in the first place. While the consumer business was supposed to add durability to the bank's earnings, it didn't really work out. Now it's time for the bank to wash its hands of the business, or at least most of it. The sooner the bank can sell GreenSky the better.
Additionally, Goldman supports the platform solutions business with roughly $3.9 billion of average common equity, so selling the loans and GreenSky could free up some significant capital.
We know Goldman has spoken about doing accelerated share repurchases, and the bank did buy back $2.5 billion of its own stock in the first quarter. Goldman also wants to continue to grow its dividend, and there may be opportunities to make acquisitions to support asset and wealth management.
Goldman expects share repurchases to moderate in the current quarter from the first quarter. But management is still focused on accelerating buyback activity, so freeing up capital from the platform business will further support this vision, which of course would be great for shareholders.
