NEW YORK (Reuters) – Goldman Sachs Group Inc (GS.N) on Wednesday set aggressive targets to grow its tiniest business division, the consumer bank, as the Wall Street powerhouse seeks to make meaningful inroads in a business dominated by larger rivals such as JPMorgan Chase (JPM.N) and Bank of America (BAC.N).
FILE PHOTO: A woman looks at Marcus, a new savings and loans app recently launched by Goldman Sachs in New York, U.S., January 10, 2020. REUTERS/Mike Segar
At its first ever investor day presentation, Goldman said it plans to grow its consumer deposit balances to $125 billion or more over the next five years. Goldman also said it plans to grow consumer loans and card balances to more than $20 billion during the same period.
In the year ended Dec 31, Goldman’s consumer deposits stood at $60 billion and it issued $7 billion in loans and credit card balances during the fourth quarter.
The latest projections are being closely watched by analysts and investors who have been eager to hear more about the consumer bank, which consists of Goldman’s online bank Marcus and its credit card with Apple.
At the moment, the consumer bank generates just 2.4% of Goldman’s annual revenue, compared to almost 40% of revenue that comes from the bank’s securities division. Analysts believe it will take at least a decade for the consumer bank to become as substantial as other major businesses.
“The investments we are making are long term investments … We are planting seeds that will take time to mature and grow,” said Goldman’s Chief Executive Officer David Solomon in an address to investors. “We think this orientation will allow us to deliver greater value to our shareholders over time.”
But Marcus is a central pillar of Solomon’s vision for Goldman Sachs, whose 151-year history has had very little to do with Main Street.
“While Goldman has lots of good ideas, it needs to execute, especially in certain areas that are somewhat new to it,” Barclays analyst Jason Goldberg said.
Shares of the U.S. bank rose 1.2% to $245.40 in trading before the bell.
On Wednesday morning, Goldman also unveiled other broad financial targets and details on its other multi-billion-dollar businesses.
Goldman said it is aiming for a 60% efficiency ratio over the next three years, while it projected an over 13% return on equity (ROE) and over 14% return on tangible equity, which are key measures of profitability. A lower efficiency ratio means a bank is better at managing its costs relative to revenue.
In the longer term, Goldman said it was aiming for “mid-teen returns” of newer businesses such as transaction banking and the consumer bank.
Goldman also plans to pull in $1 billion in revenue through lower interest expenses, according to its presentation.
Solomon also said that the bank’s third-party alternatives investment business could add $100 billion in net inflows over time.
Reporting By Elizabeth Dilts Marshall, additional reporting by Lauren LaCapra, David French, Greg Roumeliotis and Anirban Sen; editing by Lauren LaCapra, David Gregorio and Bernard Orr