Goldman Sachs, Adviser to the Elite, Wants to Be Your Local BankThe Wall Street powerhouse is planning to sell insurance, mortgages and car loans, consumer businesses it once disdained
‘This is new territory,’ says Darin Cline, standing, a former Navy pilot who runs Marcus operations in Salt Lake City. PHOTO: BRIANA SCROGGINS FOR THE WALL STREET JOURNAL
By Liz Hoffman and Peter Rudegeair
Feb. 27, 2018
SALT LAKE CITY— Goldman Sachs Group Inc. GS -0.12% has come to Main Street.
In a glass-walled tower in Utah’s capital, hundreds of Goldman employees are building what amounts to one of the world’s most ambitious consumer-finance startups.
Their address, 111 Main St., stands as a symbol of the changes afoot inside the firm, better known as an elite adviser to big companies and billionaires. Struggling to make money in the postcrisis world, Goldman is pushing into businesses it once dismissed as pedestrian and gimmicky, assembling a suite of banking products for the middle class it hopes will power growth.
Goldman 18 months ago began making online loans of a few thousand dollars under the brand Marcus, named after founder Marcus Goldman. Individuals once needed $10 million to get the attention of Goldman’s elite private bankers. Today, customers can open a Marcus savings account with as little as $1.
New initiatives under way include checkout-counter loans for shoppers, wealth management and household-budgeting tools for the masses as well as insurance, mortgages and car loans, according to people familiar with the plans.
Goldman is scooping up financial-technology startups and pitching its bank accounts to Fortune 500 companies as an employee perk, much as they offer gym memberships or health insurance. Seeking customers, Goldman—so secretive its name doesn’t appear on its headquarters—sent out 178 million pieces of direct mail last year and bought television ads during the NFL playoffs, a first for the firm.
In October, it rented a Manhattan lounge and hired an improv-comedy troupe to riff on consumer debt. Guests ate truffle “macaroni and fees” and artisanal doughnuts and took home scented candles bearing Goldman’s logo.
Wallet ShareGoldman expects its new consumer-banking business to make $1 billion a year in revenue by 2020.
Consumer banking $1.0 billion
Investing and lending $6.2B
Trading $15.2B
Asset management $7.9B
Investment banking $9.0B
Sources: the company; FactSet
The consumer-banking push is a high-stakes bet for Lloyd Blankfein, Goldman’s CEO since 2006. A former metals salesman, he rose to power before the financial crisis by pushing Goldman’s traders into ever-riskier territory. During the crisis, the firm’s reputation took a hit when it was cast as a central villain behind the mortgage meltdown. Today, as trading profits dwindle under new regulations and market shifts, Mr. Blankfein’s legacy hinges on the firm’s ability to make money in more mundane ways.
Last year, he called a few Marcus borrowers to thank them personally for their business. He wades weekly through customer complaints that find their way to his email inbox, forwarding the thorniest to Stephen Scherr, a former investment banker who oversees the consumer push.
‘Project Cookie’Marcus has lent $2.5 billion so far and has 350,000 customers across loans and savings accounts. It employs about 700 people in New York, Salt Lake and Dallas reporting to Harit Talwar, who joined in 2015 from Discover Financial Services to run the business.
“Yes, we have ambitions,” Mr. Talwar said in an interview on the 26th floor of Goldman’s Manhattan headquarters, where a popcorn machine sits in the corner and borrower testimonials hang on the walls. He was sporting Allbirds, a knit woolen sneaker popular in Silicon Valley—the footwear equivalent of a hoodie. A sign on the conference-room door marked it as the meeting spot for “Project Cookie,” one of several code-named initiatives the Marcus team is pursuing.
“The consumer is at the center of everything we do,” Mr. Talwar said. “If we can ease pain-points in a way that is profitable for the firm, then we will consider it.”
The epicenter is Salt Lake City. Two blocks from the temple of the Mormon Church, which happens to be the bank’s landlord, headset-clad customer-service representatives answer questions from small-time borrowers.
From its Marcus operations in Salt Lake City, Goldman its pushing into business es it once dismissed as pedestrian. PHOTO: BRIANA SCROGGINS FOR THE WALL STREET JOURNAL
On the firm’s New York trading desks, new employees dream of being named a Goldman partner. On Main Street in Salt Lake City, they vie for “Big Bird” status, a top title on the floor earned through positive customer feedback.
Banking giants such as Bank of America Corp.and JPMorgan Chase & Co. have balance sheets and customer rolls that Goldman can’t match. Online startups face less regulation. Amazon.com Inc. and Alphabet Inc.’s Google have an edge in recruiting top talent and leeway from investors to enter new businesses at will.
“We don’t take them lightly,” Discover CFO Mark Graf said of Goldman at a recent industry conference. “But we’re not tossing and turning in our beds at night.”
Retail banking may be a simple corner of financial services, but it has tripped up firms with longer track records than Goldman. Plus, the bank is getting into consumer credit at a time when loan losses are on the rise at competitors.
Goldman has sunk $500 million into the consumer business as it slashes costs elsewhere and struggles to boost profitability. And even if Marcus works, it will be a blip on the bottom line for years: The company projects the business will generate about $450 million in pretax income over the next three years, just 1% of what analysts expect from the firm overall.
Still, consumer lending is more profitable than many of Goldman’s other activities, particularly trading, which can no longer rely on vast borrowings to boost returns. Goldman estimates Marcus loans will produce a return on equity in the high teens, compared with Goldman’s firmwide figure of 9.2% over the past three years. And retail deposits give Goldman more-stable funding at a lower cost than relying on loans secured by its holdings of securities.
Goldman must learn softer skills as it works to cover crisis-era reputational bruises and put on a friendly face, or at least a friendly voice on the phone. “This is new territory,” said Darin Cline, a former Navy pilot who runs operations in Salt Lake City.
Walking the floor in Western boots and helicopter cuff links, he ensures that calls are answered by a live person within 30 seconds. “We know we have to get this right,” he said.
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