NEW YORK (Reuters) – Goldman Sachs Group Inc (GS.N) on Wednesday set aggressive targets to grow many of its businesses, as the Wall Street powerhouse tries to make meaningful inroads in areas dominated by larger rivals JPMorgan Chase (JPM.N) and Bank of America (BAC.N)
FILE PHOTO: A woman looks at Marcus, a new savings and loans app recently launched by Goldman Sachs in New York, U.S., January 10, 2020. REUTERS/Mike Segar
By setting broad targets and being more transparent, Goldman is making a concerted effort to address grievances of investors who have long complained about the lack of information.
At its first ever investor day presentation, Goldman said it now plans to grow deposit balances at its consumer bank to $125 billion or more over the next five years. Goldman also said it plans to increase consumer loans and card balances to more than $20 billion during the same period.
Goldman also unveiled financial targets and details on its other multi-billion-dollar businesses.
“Patient, methodical, long term approach” is how Goldman Sachs Chief Operating Officer and President John Waldron described the bank’s targets.
“We are planting seeds that will take time to mature and grow,” said Goldman’s Chief Executive Officer David Solomon in an address to investors.
Goldman said it is aiming for a 60% efficiency ratio over the next three years, while it projected an over 13% return on equity (ROE) and over 14% return on tangible equity, which are key measures of profitability. A lower efficiency ratio means a bank is better at managing its costs relative to revenue.
In the longer term, Goldman said it was aiming for “mid-teen returns” of newer businesses such as transaction banking and the consumer bank.
Goldman also plans to pull in $1 billion in revenue through lower interest expenses, according to its presentation.
Solomon said that the bank’s third-party alternatives investment business could add $100 billion in net inflows over time.
“We believe investor patience will be important as these targets will likely be (met) towards the end of the three-year period due to the investments in and ramping (up) of … consumer banking and transaction services,” said Glenn Schorr, analyst at Glencore ISI. “And of course, (there is) potential for uncooperative markets along the way.”
Shares of the U.S. bank rose 1.5% to $246.10 in early trade.
The latest projections are being closely watched by analysts and investors who have been eager to hear more about the consumer bank, which consists of Goldman’s online bank Marcus and its credit card with Apple.
Marcus is a central pillar of Solomon’s vision for Goldman Sachs, whose 151-year history has had very little to do with Main Street. Analysts believe it will take at least a decade for the consumer bank to become as substantial as other major businesses.
In the year ended Dec. 31, Goldman’s consumer deposits stood at $60 billion and it issued $7 billion in loans and credit card balances during the fourth quarter.
At the moment, the consumer bank generates just 2.4% of Goldman’s annual revenue, compared to almost 40% of revenue that comes from the bank’s securities division.
Reporting By Elizabeth Dilts Marshall and Matt Scuffham in New York and Anirban Sen in Bangalore; editing by Lauren LaCapra, David Gregorio and Bernard Orr