Goldman Sachs' humbling U-turn on its consumer banking ambitions
Good morning! This is Jeffrey Cane filling in today. Third-quarter results from the big Wall Street banks are now behind us, and they were … pretty good, all things considered? Goldman Sachs reported yesterday, and while it may not be the biggest nor the best bank (OK, No. 1 in M&A advising and equity offerings), it gets the most attention because of its history and cachet.
We'll turn to Goldman in a moment, but we also have companies that could become acquisition targets, hedge fund billionaires saying all kinds of things, and a problematic egg-yolk omelet.
Shall we?
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1. Goldman's consumer retreat. Goldman's earnings and revenue for the third quarter were down from a year ago, but were higher than estimates as the firm's trading desks helped save the quarter for the firm. Net revenue from trading rose 11% in the quarter, to $6.2 billion. Net revenue in fixed income, currency, and commodities (FICC) rose 41%, to $3.5 billion, helped by repo agreements and mortgage lending.
Trading and dealmaking made the reputation of the 153-year-old Wall Street firm, but the spotlight lately has been on its struggling consumer banking unit, Marcus. Under the announced reorganization, Marcus will go into a combined division of wealth and asset management as the firm shrinks from four units to three.
Goldman will now focus on existing Marcus customers "rather than seeking to acquire customers on a mass scale," CEO David Solomon said on the earnings conference call, according to a Sentieo transcript.
The consumer business "doesn't make money at the moment," Solomon acknowledged, but he added: "The deposits are hugely valuable. And we do believe as the platform scales and you stop the pace of growth that we've had … that what we're doing will deliver accretive returns to the firm."
To understand what has been happening inside Marcus, read Insider's Dakin Campbell's deep dives on what has gone wrong with the consumer banking unit, along with why the bank has been contemplating a pivot in strategy for months.
In other news:
AP Photo/Mark Lennihan
2. As valuations drop, software companies face becoming takeover targets. RBC Capital Markets analysts identified 16 companies – including Zoom Video Communications – that could attract the interest of a tech giant or a private-equity firm.
3. Twitter has locked up employees' equity awards accounts as the Oct. 28 deadline for the company to close a buyout deal with Elon Musk draws near, Bloomberg reports.
4. Bill Ackman: Hedge fund manager. Billionaire. Foreign diplomat? Echoing Elon Musk, Ackman tweeted over the weekend that a return to the pre-invasion status between Ukraine and Russia, ceding Crimea to Russia, could be part of a peace deal, the New York Post reports.
5. Another hedge fund billionaire, Seth Klarman, talks about the discipline needed for value investing. Insider has an excerpt of a conversation with the Baupost Group leader from David Rubenstein's book, "How to Invest: Masters on the Craft."
6. D.C. day trading: A Wall Street Journal review of financial disclosures by 12,000 federal employees from 2016 through 2021 found that about seven dozen of them had each made more than 500 trades during that period.
7. From Wall Street darlings to prey. Some 76% of more than 400 US companies that went public between 2019 and 2021 (raising at least $100 million) are trading below their IPO price, according to a Financial Times analysis of Dealogic data. The selloff has made many of these companies potential targets for cash-rich private-equity firms.
8. State Street's $3.5 billion deal for the investor services business of Brown Brothers Harriman – announced in September 2021 – is struggling to win regulatory approval. According to a Sentieo transcript, State Street CEO Ronald O'Hanley said on Tuesday's earnings conference call: "We believe there's still the possibility that … we can structure this transaction in a way that it will work both for shareholders … But as we've said in the disclosure, the likelihood of that happening is going down."
9. Working from home? Maybe not so much working. A post on the Federal Reserve Bank of New York's blog, using survey data, finds that while WFH Americans "may have increased time working in the precise time-slot they used to commute, overall paid-work hours fell" as they spent more time on leisure activities and sleeping.
10. Talk about a U-turn. And it didn't happen in the UK. On Instagram, New York restaurateur Keith McNally initially accused comedian and late-night TV host James Corden of being abusive to a manager and server at Balthazar in Manhattan's SoHo. Corden would be banned from his establishment, McNally said. But not long afterward McNally wrote that he had reversed his decision, saying that Corden had "apologized profusely." Provoking one of Corden's flare-ups had apparently been an egg-yolk omelet. Vulture has a deep dive into this angle of the story.
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Edited by Dan DeFrancesco (tweet @dandefrancesco) and Lisa Ryan (tweet @lisarya) in New York.
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