Goldman Sachs' Identity Quest

Who Am I❓

A question everyone must ask.

A question every bank must ask as well.

Here is Goldman Sachs’ journey to explore a new identity and how it ended up with the most recent strategic pivot. 👇

First, back to 2008.

🟥 𝐓𝐡𝐞 𝐆𝐫𝐞𝐚𝐭 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐂𝐫𝐢𝐬𝐢𝐬

14 years ago, the crisis announced the death of the independent investment banking model.

Then top 5 investment banks in the US:

🚩 Lehman Brothers collapsed.

🚩 Merrill Lynch bought by Bank of America.

🚩 Bear Stearns bought by JPMorgan Chase.

🚩 Goldman Sachs and Morgan Stanley became bank holding companies - subject to more regulations but allowed to receive the bailout $.

After things normalized, in 2015, GS decided to build up an important banking pillar it did not have - retail banking.

Like many in the industry, I have been observing with great interest: can someone used to the “fast and furious” play adapt to the “slow and boring” game?

In the subsequent 6 years, GS made serious moves, but not without questions.

🟦 𝐓𝐡𝐞 𝐃𝐢𝐠𝐢𝐭𝐚𝐥 𝐁𝐚𝐧𝐤, 𝐰𝐢𝐭𝐡 𝐚 𝐍𝐞𝐰 𝐍𝐚𝐦𝐞

Without any branch network, the easiest way was to launch a digital bank.

In 2015, as GE exited finance and back to its industrial core, GS picked up its US online deposit platform with $16B deposit and CDs.

In 2016, GS launched Goldman Sachs bank. Later that year, GS launched the online personal loan - under a new brand Marcus.

Marcus is from the name of GS’ co-founder Marcus Goldman. The naming followed the start-up trend using a simple first name.

There is an issue for traditional banks to create separate digital brands: which name do you want consumers to remember?

If the new brand becomes successful and attracts new customers, would they recognize and connect with your main brand? Do you plan to integrate two brands later?

For banks who already have established retail banking practices, they have to digitalize their existing businesses anyway. Are the two brands eventually competing with each other?

That is why JPMorgan Chase abandoned its digital bank “Finn” in 2019.

The name JPMorgan used to acquire 1 million UK customers in the last 12 months? “Chase”.

🟧 𝐏𝐫𝐢𝐯𝐚𝐭𝐞 𝐋𝐚𝐛𝐞𝐥 𝐂𝐫𝐞𝐝𝐢𝐭, 𝐁𝐞𝐡𝐢𝐧𝐝 𝐭𝐡𝐞 𝐒𝐜𝐞𝐧𝐞

The $100B deposit alone is not a good thing for a retail bank, if you cannot put it into action via lending.

Any faster way other than issuing loans by yourself?

Leverage a well-known consumer brand.

In 2019, GS became the dark horse to win the credit card partnership with Apple.

GS + Apple. A perfect tie-up between two shiny names. However, the GS name can only be found on the back of the Apple card.

That is typical for a private label credit business. The retailer's name is front and center. The lender stays behind the scene.

That means the brand value to GS is not as big as the size of the Apple card indicates.

Image source: Bloomberg

Plus, the financial gain from the Apple deal probably is not great. All the main private label card issuers were in the bid. GS did not win with its experience, thus it must be favorable financial terms - for Apple.

One huge deal without much financial gain is not good. The concentration risk is high - in March 2022, Apple was reported to plan to break away from the existing financial system and move some functions in-house.

That is why GS tried to expand its partnerships.

2020: launched line of credit for businesses on Amazon and Walmart

2020: acquired GM credit card portfolio from Capital One

2022: acquired GreenSky, a sales finance provider

2022: signed T-Mobile credit card deal.

However, a private label business needs a different mentality and org structure from a bank’s own credit business. Large banks such as Chase, Citi, and Wells Fargo all have their private label business run separately.

In another word, making strides in the private label business does not help GS too much to build its own branded lending business.

The deal with Walmart is interesting. Can you imagine Goldman's name tied up with Walmart 10 years ago?

In the deal, GS does not work with Walmart shoppers, but with its SME sellers.

What about the Walmart credit card? When that portfolio is up for bid, would GS pursue it as hard as for Apple?

🟥 The Checking Account

Six years later, GS does not have the most important product - the checking account.

A primary checking account is the focal point of a retail banking relationship. The payroll deposit, pre-authorized debit, and daily spending make the relationship last. It is easier to cross-sell lending products such as mortgages and credit cards.

After some delays, the checking account is planned to roll out by the end of 2022.

However, for investors, it is not fast enough.

🟧 The Other Investment Bank

Morgan Stanley, the only other Big 5 investment bank standing, took a different path.

Back in 2008, then-US Treasury Secretary Paulson tried to broker a deal. He asked JP Morgan to take Morgan Stanley for a nominal dollar. Dimon said no.

Post the crisis, Morgan Stanley strengthened its investment banking and expanded its wealth management function.

It moved down to the mass affluent segment while emphasizing its strength with corporate clients.

As of 10/11, Morgan Stanley’s market cap is $132B. GS has $100B.

🟦 Strategic Pivot

Six years later, GS announced its strategic pivot on 10/10:

The consumer business will be restructured, with some products going to wealth management.

The highly anticipated checking account will only be offered to wealthy clients and employees at corporate partners.

That tells you where GS’ focus will be.

With this pivot, GS seems to find the answer to the question - Who am I?

After all, there is a “Goldman” in the name to carry.