Goldman Finds Out It Doesn't Want To Be Visa
A lesson on corporate change playing out in real time--PLUS: the consumer is set to get shellacked over the head yet again.
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Stick To Your Knitting
Goldman Sachs GS 0.00%↑ is down today after the bank reported a 33% drop in profits, mainly due to the company’s consumer finance unit which has grown into a bit of an albatross. A lot has been written about the fact that current and former Goldman partners are unhappy with current CEO David Solomon, who has been the responsible party for the company’s foray into new a new business.
As one anonymous Goldman partner put it, “We should have never done this f*cking thing.”
The frustration in the firm, as alluded to previously, isn’t just with the new business lines. It’s with Solomon himself—take a gander at this snippet from an August article from the Economist:
Complaints have come from Mr Solomon’s underlings, who told reporters that he is “not likeable” and is, quite simply, “a prick”. They have also come from his predecessor: Lloyd Blankfein was reported by the Wall Street Journal to have complained about Mr Solomon’s use of the company’s private jets to go to music festivals, where he performs under the name “dj d-Sol”, rather than spending time on the day job.
The mutiny at Goldman has become so open that grousers no longer even bother to do it in private. According to Bloomberg, at a lively steakhouse dinner in Manhattan last month managers complained about Mr Solomon’s failings in the presence of John Waldron, the firm’s chief operating officer and Mr Solomon’s longtime lieutenant. In July Larry Fink, boss of BlackRock, said on tv that there was an obvious “schism” at the bank. Even students are getting in on the act. After a visit by Mr Solomon to Hamilton College, three youngsters wrote an open letter complaining that their conversation with him about climate change had “racist and sexist undertones”, something Goldman disputes.
So there’s a lot to unpack there.
Remember that these guys aren’t selling sunshine and rainbows—this is Investment banking, at Goldman Freaking Sachs, the heftiest gorilla in the room. For these guys to be calling Solomon a prick, or unlikable, is… just… jeez.
Lavish corporate perks are to be expected—but taking a company jet to a music festival to DJ? And, sure, Goldman is a partnership where the partners have a whooole lot of sway, but it’s still a public company, and it doesn’t seem to be acting in the shareholders best interests to be taking the corporate jet around for your wannabe-DJ gigs.1
“Racist and sexist undertones” is never a good thing to have attributed to you, but to have that accusation be leveled in a conversation about climate change sure is odd.
So, David Solomon’s apparent un-likeableness aside, I think this brings up an interesting conversation that investors and businesspeople alike should consider:
Do you always need to innovate?
Anyone who’s been in corporate America for any length of time has certainly had some fresh-faced MBA drone to them about how saying ‘that’s the way we’ve always done it’ is corporate sacrilege.2 And look, I get it—companies have to stay current. But sometimes (SOMETIMES), if it ain’t broke, you shouldn’t fix it.
Goldman had ostensibly no need to expand into consumer finance. It wasn’t a core competency, it wasn’t an area in which the firm could gain a distinct competitive advantage (even the big score of Apple had failed to generate the positive momentum the firm hoped for), and it is an already-crowded space.
In other words, Goldman Sachs found out the hard way that it really doesn’t want to be Visa V 0.00%↑, and that it’s perhaps better to just be Goldman Sachs.
The Consumer (And Student Loans), Again
We spend time here quite frequently talking about the state of the American consumer, not because we want to, but because the subject is pretty darn important right now. The cliff notes version of this is:
If the American consumer is strong, the economy will remain buoyant.
If the American consumer can’t consume all that he pleases, things begin to break down.
The American consumer is starting to feel it.
Thus, the economy is likely to feel it, as well.
The Wall Street Journal reported about as much today:
Savings are down, credit is harder to come by, student loan repayments come due this month, and price tags for things like gasoline are up, all of which will hit consumers’ spending power, according to Knightley. And the pressures, he said, could accelerate shifts away from the spending behaviors that developed during the last few years and further chip away at some of the gains companies have seen from the pandemic.
“The challenges for growth as we enter the fourth quarter are intensifying,” said Knightley. “And my fear is that we are going to see a bit of a reality check.”
Well, well, well. The ol’ specter of student loan payments raises its head. For those of you who think I’m just making a mountain out of a molehill with my consistent harping on student loans, consider that of the roughly $4.7 trillion outstanding non-housing debt in the U.S., $1.57 trillion is student loan debt.
That is debt that:
Has not seen principal reduction for a looong time, and
Has seen the money that would have been used to make payments flow to other parts of the economy.
Consider now the average student loan payments by degree:
Now, I’m no economist, but taking $621 per month out of someone’s pocket on average is going to hurt. But, like I said yesterday, markets tend to ignore bad news until it punches them in the mouth.
Final Thoughts
The U.S. is placing further restrictions on chip sales to China. Economic data came in hot, yet again. Remote work is tired, hybrid work is wired. Pretty cool: making space-based solar power a reality. BofA beat forecasts. Interesting: the China pivot in foreign relations now seems a bit premature. Exploring a two day workweek.
To be completely fair, there could be some arrangement for this, either in Solomon’s employment contract, or a method by which the company is reimbursed for personal travel, etc. But who knows.
I hope that a) I’m not alone in saying that this mantra is probably the most inanely and mindlessly repeated phrase in business, and that b) I’m not the only one who wishes it would die a thousand firey deaths.