Goldman Sachs reports lower profits as it eyes Main Street growth

Goldman Sachs CEO David Solomon touted new consumer-oriented ventures in digital banking and credit cards as the bank reported lower profits. (AFP pic)

NEW YORK: Goldman Sachs reported lower first-quarter earnings Monday on weakness in its traditional trading business as it talks up newer consumer-oriented ventures, including a credit card that will be launched with Apple.

The financial giant saw net income plunge to US$2.1 billion, a 20.3%  drop from the same period of last year. At the same time revenues fell 12.7% to US$8.8 billion.

Goldman shares tumbled on the results and were joined by Citigroup, which dipped after reporting a slight increase in first-quarter profits.

Goldman encountered sharp declines in key trading divisions, such as equities and bonds. Market conditions improved from the prior quarter, but volatility was low, crimping trading activity, the investment bank said.

A bright spot was financial advising for mergers and acquisitions where it scored a boost in revenues, while underwriting revenues fell.

There were no major announcements about the scandal involving Malaysian fund 1MDB, which has prompted a series of government probes.

“Nobody wants to get to a resolution on this faster than we do,” chief executive David Solomon told analysts. “And we are absolutely committed to doing everything that we can to move the process along as quickly as possible.”

Executives outlined a number of growth initiatives, including its expansion of its “Marcus” online consumer lending and banking venture that has been touted as a means to diversify the firm beyond Wall Street.

Marcus offers personal loans and has attracted deposits by paying much higher interest rates than rival banks. The bank hopes to lure in users who will evolve into long-term customers who can help drive profitability.

A key element will be the launch of a credit card with Apple, although there is no date set yet.

“We look for markets that are big where we don’t need to capture commanding market share to be relevant,” said chief financial officer Stephen Scherr.

“We’ve also looked at markets and at products where there are pain points felt by the consumer,” Scherr told analysts. “We have done that successfully in loans and now we are doing that in the card space.”

Other growth ventures included tapping into a broader wealth management customer base by targeting more executives at mid-sized companies.

Goldman currently provides wealth management services to 60 of the Fortune 100, but only 220 of the top 1,000. The larger pool opens a much larger group of the “mass affluent business,” executives said.

CFRA Research analyst Ken Leon predicted Goldman’s flagship investment bank performance would improve due to the healthy pipeline of initial public offerings.

Marcus and other consumer-oriented ventures “are not going to have a meaningful impact in 2019, but they are definitely going to be more significant in three or five years,” he told AFP.

Competing for customers 

Meanwhile, Citigroup reported first-quarter profit of US$4.7 billion, a 1.9% increase from the year-ago period, while revenues dropped 1.6% to US$18.6 billion.

Citigroup chief executive Michael Corbat cited growth in its credit card business and said new digital banking initiatives in the US were boosting deposits.

“While GDP growth does appear to be slowing somewhat, we still see good consumer and corporate engagement,” Corbat said on an analyst conference call with analysts.

Citigroup is also offering generous interest for a new digital banking savings product to 40 states in the US where it has no physical branches, a spokeswoman said.

For example, customers in Louisiana or Maine would benefit from a yield of 2.36%, well above the national average.

Citigroup has also been running a promotion in the 10 states where it has branches, but they have US$25,000 minimum balance, the spokeswoman said.

Shares of Goldman fell 3.8% to US$199.91, while Citigroup slipped 0.1% to US$67.38.