Goldman lost US$1.2b in just nine months in newest unit

Three months after Goldman Sachs Group Inc. carved out a new division to house what’s left of its once-ambitious foray on Main Street, it’s giving shareholders a clearer look at those financials.

The collection of businesses — including Goldman’s Apple Card — now packaged into the segment dubbed Platform Solutions racked up more than $1.2 billion in pretax losses in last year’s first nine months, with the drop accelerating every quarter. 

That tally, disclosed in a regulatory filing Friday, is meant to help shareholders and analysts prepare to track Platform Solutions’ evolution once Goldman begins breaking out its performance in quarterly reports, starting on Tuesday. But it also shines new light on how much the expansion has been dragging down the New York-based firm’s bottom line. 

From the start of 2020 through the end of September, Platform Solutions’ pretax losses piled up to $3 billion, the filing shows. When the latest quarter’s figures get added to it next week, that cumulative loss will approach $4 billion in the three-year span and $2 billion for the year driven by loan-loss provisions, people with knowledge of the matter said.

The Platform Solutions provisions for the first nine months of 2022 totaled $942 million, the filing shows. At a time when charge-off rates have been historically low, Goldman had said that rate for its consumer-lending business had climbed to an annualized mark of 2.9% after the period ended September, up 60 basis points quarter-on-quarter. 

That rate is higher than its bigger consumer-banking peers. At the time, the bank had $14 billion in credit-card loans and $5 billion in installment loans. 

Lofty Goal

The division is a whittled-down version of what was once Goldman’s lofty goal of storming the consumer market — building a digital bank of the future that would become an industry leader. Instead, rattled by the persistent costs and difficulty of setting up new business lines, the firm decided to scale back its ambitions and reposition the pieces. 

Much of what’s left targeting the mass market is now in Platform Solutions, including card tie-ups and installment lending. The transaction-banking business line, which is also a part of this group now, is probably the only profitable element.

The numbers released Friday offer clues into what Goldman has been spending to establish the high-profile Apple Card, created through a partnership with Apple Inc.

The division’s $1 billion pretax loss reported for 2021 was mostly tied to the Apple Card, people with knowledge of the numbers said. And about $2 billion in 2022 mainly stems from the Apple card and installment-lending platform GreenSky, the people said.

The question is whether Goldman will feel more pressure to ease off on what executives have viewed as investments now that the expenses are more easily visible to shareholders.

Goldman’s overall consumer business was initially supposed to break even by the end of last year. Executives in the new Platform Solutions division now forecast it may achieve that sometime in 2025, though a final target has yet to be set, people with knowledge of the matter said.

In the meantime, facing pressure to preserve returns, Chief Executive Officer David Solomon is finding other ways to reel in spending. This week, the firm moved beyond annual culls of underperformers, embarking on one of its biggest rounds of job cuts ever, including in its core banking and trading operations.

The firings come after Goldman had mostly set aside its annual process of weeding out underperformers. But so did most of its competitors. At the same time, the bank’s powerhouse dealmaking franchise and asset-management business haven’t been able to provide the foil with outsized fees and investment gains, as they did a year ago. 

Previously, the only financials Goldman had disclosed in its consumer business showed $1.3 billion in losses since inception through mid-2019. That and the about $4 billion three-year loss don’t include some the roughly $2.5 billion spent on acquiring installment-loans provider GreenSky as well as other bolt-on acquisitions to beef up the business. –BLOOMBERG