Years ago, IBM built an artificial intelligence system called Watson. This starred in nifty TV commercials beating human geniuses at chess and in quizzes. It is unclear whether Watson ever produced much hard cash as opposed to soft power for the computing giant.
The precedent is ominous for Goldman Sachs, the most famous securities firm in the history of Wall Street. It has its own mononymic offshoot. This is a nascent online consumer banking service called Marcus.
On Tuesday, the ambitious parent confirmed in quarterly earnings that Marcus is not getting the grades it was hoping for. Marcus has helped attract more than $100bn in deposits, stabilising Goldman’s funding base. But spending billions of dollars to attract retail customers is no longer sensible.
As a part of a broader reshuffle, Goldman’s asset management and wealth division will become a single unit with Marcus stuffed inside it. Goldman will consolidate its stellar investment banking and trading businesses into a single unit too.
Chief executive David Solomon boasted on Tuesday that the firm has 11,000 engineers. These techies, while building cutting-edge gizmos, cannot yet keep up with old school bankers and traders in making piles of money.
A third division, Platform Services, will house Goldman’s newfangled offerings beyond consumer finance. Goldman’s nerds there have developed payments and credit card infrastructure it can market to corporate treasurers and the like. The unit has $1bn in annual revenue which would make it a hyped unicorn in Silicon Valley. Yet that figure still represents less than a tenth of Goldman’s turnover.
Unlike IBM, Goldman’s core businesses are not only big but remain dominant. The problem for its shareholders is that deal and underwriting fees are erratic and do not attract high valuation multiples. Goldman shares trade only at their book value.
The imperatives set by public investors and regulators have forced Goldman to look towards creating intriguing but expensive new businesses. The firm’s old school mantra extolled a Goldman that was “long-term greedy”. That motto is suffering a severe test, as the travails of Marcus indicate.
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