Goldman’s Pitch to the Little Guy Turns Costly, as Struggles Mount

Goldman Sachs is paying for its misbegotten foray into consumer banking.

Six years ago, Wall Street’s most elite investment bank made a big pitch to the little guy, rolling out credit cards, high interest accounts and loans. On Friday, the bank announced that it had lost slightly more than $3 billion tied to that business since December 2020.

It’s the latest in a mounting pile of woes for Goldman, which is contending with an economic slowdown that has hurt its traditional investment banking business, at the same time as the changes instituted by David M. Solomon, who took over as chief executive in 2018, have caused upheaval inside the bank.

The announcement on Friday follows a major restructuring that Mr. Solomon unveiled in October as part of his efforts to streamline the bank’s culture and practices, and to better orient the firm toward a future in which technology is likely to sap the ability of big banks to make money as intermediaries.

The reorganization involved combining one part of its consumer banking business, including its online bank Marcus, with an asset and wealth management unit. A second part of the consumer business — including a credit card partnership with Apple — was folded into a newly created unit. Its bread-and-butter investment banking and trading businesses were merged into a third unit.

Goldman’s retail banking operation has been foundering for some time, but it’s hardly the only challenge facing the bank. For the past few years, Goldman has dealt with uneven earnings and departures of top executives, some of whom were frustrated with Mr. Solomon’s leadership style. This week, it let go of 3,200 bankers, its largest round of layoffs since the aftermath of the 2008 financial crisis.

Tony Fratto, a spokesman for Goldman Sachs, characterized the job cuts as a mix of slimming down in the face of slowing corporate deal making, a retrenchment in the firm’s consumer ambitions and the ordinary culling of low-performing staff.

The fortunes of many Wall Street banks have swung widely in recent years. Big U.S. banks benefited from an easing of restrictions during the Trump administration. And in the early part of the coronavirus pandemic, volatile markets (which help trading) and government bailouts and easy monetary policy (which encouraged consumer spending and corporate activity) enabled many to turn record profits.

The frenzy, which included record deal-making activity in 2020 and 2021, came to a halt last year, largely as a result of the Federal Reserve’s interest rate increases.

JPMorgan Chase, the nation’s largest bank by assets, reported a better-than-expected fourth quarter profit on Friday, but said investment banking revenue plunged 57 percent as big companies went into retrenchment mode.

The combination of high interest rates and fast inflation has hit Goldman especially hard because of the slowdown in its most profitable businesses. In sales and trading, Goldman’s revenue last quarter shrank roughly twice as fast as that of its peers, according to estimates from Credit Suisse. And the business of advising companies on initial public offerings and mergers tapered off, strangling a big source of revenue for the bank.

Though Goldman maintained its place among peers as the leader in advising companies in 2022, the global revenue it brought in from deals fell to $4.2 billion from $4.8 billion in 2021 — a record year for deal-making, according to Dealogic. Its equity capital markets business felt a far bigger sting, bringing in $323 million in the United States last year, much less than the $2.5 billion it brought in a year earlier.

On Friday, Goldman revised its financial results, going back to 2020. For the first nine months of 2022, the new unit, called platform solutions, lost $1.2 billion, with more than half that loss coming in the third quarter alone, Goldman said in a securities filing. Its main trading and banking businesses made nearly $12 billion, while the asset management business eked out a $1.3 billion profit.

The bank is likely to provide more details on Tuesday, when it reports fourth-quarter earnings. Analysts project that the bank will report a steep drop in quarterly profit.

Since taking the top job in 2018, Mr. Solomon, 60, has made numerous changes. He has merged fragmentary fiefs inside its asset management division and eliminated antiquated rivalries between different groups of bankers.

With the backing of the bank’s board, Mr. Solomon asserted that the changes were Goldman’s only way forward in an era when technology threatens to weaken the traditional financial system’s hegemony.

His compensation seems to reflect the board’s approval. Mr. Solomon’s pay rose to $39.5 million in 2021, the most recent year for which data is available, from $24.7 million in 2019, his first full year on the job. Since his ascension to chief executive, Goldman’s stock price is up 65 percent, well ahead of its rivals’ average.

Some of Goldman’s biggest problems trace to a time before Mr. Solomon was in charge. For instance, the bank’s move into consumer banking in 2016, with offerings of high-interest-rate checking accounts and a luxury-oriented credit card, happened under Mr. Solomon’s predecessor, Lloyd C. Blankfein. In its early stages, the business ran largely independently of Goldman’s operations, and its managers had the freedom to develop its customer base and technology offerings.

But Mr. Solomon’s handling of the business has drawn widespread criticism from investors and analysts. Early in his tenure, he merged the fledgling consumer bank with Goldman’s private wealth management arm. Suddenly, the oversight of Marcus was shared among many senior executives who previously had no input. Many of Marcus’s original managers left.

And then there is Mr. Solomon’s leadership style, which has created enough friction among senior employees that it could undermine the success of his strategy, according to seven people who spoke about his approach.

“David has a direct style, but he’s running a big, complex business,” said Mr. Fratto, the Goldman spokesman. Of employees’ criticisms of their boss, he said that it was not unusual to have different views about a chief executive’s style, but Mr. Solomon has shown flexibility. “If a strategy isn’t meeting our aspirations, David has shown the ability to adjust and pivot,” he said.

Goldman was founded in 1869 and evolved into a partnership not long after. Although it became a public company in 1999, the spirit of partnership and loyalty was a prized feature of Goldman’s culture.

More recently, it has dissipated. Since Mr. Solomon started, at least nine senior executives have left the bank, some of them for more lucrative opportunities. And with bonuses shrinking by as much as 50 percent across Wall Street as a result of the downturn in trading and investment banking activities, the incentives to remain are fewer.

Mike Mayo, a longtime banking analyst at Wells Fargo, said of Mr. Solomon: “He has a mission, and that mission is not to be the most-liked person at the firm.”

Unlike Mr. Blankfein, who took a more genial approach and acted as a guiding force, according to people who worked for him, Mr. Solomon rules with an iron fist. To foster trust, Mr. Blankfein kept the firm going more like a partnership than a top-down organization, often using humor to defuse tense moments and win his employees’ loyalty.

Mr. Solomon, by contrast, spurns dissent, appears unwilling to entertain criticism and has been known to yell at meetings, many high-ranking current and former employees said — a style of management that has fallen especially out of favor after the coronavirus pandemic upended traditional notions of work and work-life balance.

Much of the employee discontent started during the pandemic, when Mr. Solomon was seen as lacking empathy and sensitivity. In July 2020, well before Covid vaccines were available, Mr. Solomon was determined to issue a decree to employees to return to the office, five days a week, according to two people with knowledge of the matter. He had to be talked out of sending a memo mandating such a return, the people said.

Although he abandoned the effort to bring everyone back so early, Mr. Solomon insisted on in-person meetings with senior staff members when the New York State and City health guidelines allowed it.

Goldman has since mandated a policy that requires employees to be in the office five days a week. Some of its peers, including Citigroup and Bank of America, have been more flexible.

Lauren Hirsch contributed reporting.