Strong trading results and complete restructuring: what’s happening to Goldman Sachs?
On October 18, Goldman Sachs stock surged 2.3% following important corporate updates. Firstly, the firm posted Q3 results that beat analysts’ estimates. In addition, the company announced a major make-over ushering in the next phase in its growth.
Despite the $8.25 EPS (compared to the expected $7.69), Goldman Sachs still bore financial losses. The company said profit fell 43% to $3.07 billion, while revenue declined 12% to $11.98 billion.
Therefore, David Solomon, the chief executive of Goldman Sachs, announced a “realignment” of the bank. It will now combine trading and investment banking into one unit; asset management, wealth management and consumer businesses into another; and separate digital offerings in a third unit.
After the reorganization, the bank’s consumer banking business Marcus will be marketed to employees of large companies that are already Goldman clients. Mr Solomon explained that such targeting would significantly reduce the cost of attracting new users.
Partnerships with tech giant Apple and vehicle producer General Motors will now be managed in a different business line called Platform Solutions, along with cloud-based services that the bank offers to other large companies.
The advantages of the broad reorganization are yet to be seen. The company’s new strategy brings the bank back to its traditional strengths of trading and investment banking. Apparently, it will also negate the poor performance of Marcus, a business that was always viewed sceptically by Wall Street. However, the pullback is not a significant change to the current strategy.
At the same time, it means the bank is not ready to compete with incumbent Main Street lenders for mass market customers. The expansion of consumer strategy has proven to be costly in terms of operating expenses and provisions.