David Solomon

What it implies for CEO David Solomon and the reasons why Goldman’s consumer ambitions failed

Early in 2018, when David Solomon was selected to succeed Lloyd Blankfein as CEO of Goldman Sachs, a wave of panic swept through the bankers working on a little company called Marcus.

Harvey Schwartz, who lost to David Solomon, was one of the company’s early proponents of its venture into consumer banking and was frequently spotted pacing the floor of Goldman’s New York offices, where it was being developed. Solomon quickly embraced the company, much to the delight of the management. Would Solomon destroy the fledgling endeavour?

Yet, they didn’t feel any comfort for long. That’s because, according to a dozen individuals with knowledge of the situation, many of the choices David Solomon made during the ensuing four years — combined with elements of the company’s hard-charging, ego-driven culture — eventually failed Goldman’s consumer aspirations.

David Solomon gave in to pressure to control the growth of the company

The concept of Marcus, which involved turning a Wall Street juggernaut into a Main Street competitor capable of competing with industry titans like Jamie Dimon’s JPMorgan Bank, immediately captured the attention of the financial community. Within three years of its 2016 start, Marcus—a play on the founder of Goldman Sachs’ first name—attracted $50 billion in precious deposits, grew to lend, and prevailed in fierce competition among banks to issue a credit card to Apple’s numerous customers.

David Solomon
Credits: Business Insider

Nevertheless, as Marcus evolved from a side project to the centre of attention for investors looking for a growth story, the company quickly grew and finally collapsed under the weight of Solomon’s aspirations. Solomon gave in to pressure to control the company’s growth in the latter half of last year, dividing it up in a restructuring, eliminating its first loan product, and shelving a costly checking account.

For Solomon, the experience comes at a difficult moment. More than four years into his position, the CEO is under pressure from an unexpected source: his own company’s disgruntled partners, whose disclosures to the media over the past year hastened the bank’s strategy change and exposed seething resentment over his prominent DJ pastime.

Solomon, with a larger multiple on his earnings

Under Solomon, Goldman shares have outpaced bank stock indices, thanks in part to the company’s profitable core trading and investment banking activities. Yet rather than rewarding Solomon with a larger multiple on his earnings, investors have recently given the advantage to rival Morgan Stanley, which has a price-to-tangible book value ratio about double that of Goldman.

This raises the stakes for Solomon’s second investor day conference on Tuesday when the CEO will outline his most recent strategy for developing enduring sources of revenue growth. Investors want to know why Marcus, praised at Goldman’s prior investor day in 2020, went awry and proof that management has learnt from the expensive incident.

When the concept for Marcus was conceived off-site in 2014 at the vacation house of then-Goldman President Gary Cohn, its creators could not foresee its course. Goldman, a leader in corporate, government, and ultrawealthy advisory services was absent from the retail banking sector.

2022 went on that Goldman was dealing with h fundamentally different climate

Oddly, according to sources who knew the situation, Cohn opposed the retail effort and informed the bank’s board that he didn’t think it would succeed. In this respect, Cohn, who left Goldman in 2017 to join the Trump administration, symbolised the old guard who thought that consumer finance was not in the company’s Culture.

As Solomon assumed control in 2018, he started a series of corporate reorganisations that would affect the direction of the developing company.

Marcus, a venture led by former Find CEO Harit Talwar and Goldman alum Omer Ismail, has been intentionally shielded from the rest of the firm since its inception.

The bank began testing its checking account with personnel in April 2022 and informed them that it was “just the beginning of what we believe will soon become the primary checking account for tens of millions of clients.”

Yet, it became apparent as 2022 went on that Goldman was dealing with a fundamentally different climate. By hiking interest rates, the Federal Reserve ended an extended period of low-interest rates, which clouded the financial markets. The decreases were especially detrimental to Goldman Sachs, one of the six largest American banks, and suddenly Solomon was pressing for Marcus and other places to slash costs.