Exclusive: Goldman eyes deals to boost Marcus – sources

By Matt Scuffham

(Reuters) – Goldman Sachs Group Inc is considering acquisitions to bulk up its consumer banking unit Marcus, after the Wall Street firm slowed loan and deposit growth at its fledgling business last year in the wake of the coronavirus pandemic, three bank sources said.

Goldman management has put an “extremely high” bar for any deal to be large and transformational, the sources cautioned. One of the sources said the bank had M&A bankers crunching numbers on “different ideas.”

Digital banking is one area of interest. The pandemic has strengthened management’s belief that online activity will be central to future growth within the industry and branches will continue to have a diminished role, the source said.

As a result, executives are ruling out any deals that involve acquiring branches. Digital businesses that bring in new customers or unique technologies would be attractive to the bank, the source said.

Goldman Sachs declined to comment.

Building out Marcus, which is named after one of the bank’s founders, is a key plank of Chief Executive David Solomon’s plan to reduce Goldman’s reliance on volatile trading and investment banking revenues. To do so, Solomon wants to build businesses with predictable revenues such as consumer banking and mass-market wealth management, which most of its main rivals now have.

In January last year, Solomon set out three- and five-year financial goals for Marcus as well as the overall profitability of the firm. The three sources said booming investment banking and trading businesses during the pandemic and cost cuts made possible by remote working have helped Goldman make significant progress on its profitability and cost-cutting goals.

However, worried about the quality of loans in the middle of a recession, executives have said they slowed loan and deposit growth at Marcus.

When Goldman reports its fourth quarter results Tuesday, it is expected to say that loan growth at its consumer business, which includes Marcus and a credit card joint venture with Apple Inc, has been slower than anticipated, the three sources said.

The bank may warn that a target it set to grow consumer loans and credit card balances to over $20 billion over five years, from $7 billion in January 2020, could take longer to achieve if the economic slowdown persists, the sources said.

It is expected to stick with a target to achieve $125 billion of deposits over the same period, anticipating that market conditions will improve, the sources said. Total deposits were $96 billion at the end of third quarter.

Goldman plans to keep the deposit target despite regulatory restrictions in the United Kingdom and its decision to cut rates on U.S. savings accounts slowed growth dramatically in the second half of 2020, the sources said. The bank added just $4 billion of deposits in the third quarter after adding $32 billion during the first half.

Rival Morgan Stanley spent more than $20 billion last year acquiring discount brokerage E*Trade and investment management firm Eaton Vance.

Analysts and industry insiders have long expected Goldman to try to grow its consumer business through acquisitions, and some said the time was right for the bank to do so now.

Last year, the bank settled long-pending corruption probes involving Malaysia’s sovereign wealth fund 1MDB, lifting a cloud that can often keep regulators from signing off on major acquisitions.

At the same time, regulatory sources said President-elect Joe Biden’s administration may take a more restrictive stance on allowing bank deals than the Trump administration did, meaning there might be a limited window to do large banking deals.

Moreover, the bank has excess capital following U.S. Federal Reserve’s decision last year to restrict payouts.

(Reporting by Matt Scuffham; editing by Paritosh Bansal and Edward Tobin)