Goldman Sachs GS plans restructuring of its business segments, along with formation of a new unit — Consumer & Wealth Management. As per the reorganization plan, which will become effective beginning with the bank’s fourth-quarter and annual 2019 results, the Investing & Lending segment will be dissolved and its results will be integrated with the four revamped segments.
Notably, more details of Goldman’s plans are expected at its first-ever investor day later this month.
Reorganization in Detail
The four segments will be named as Investment Banking, Global Markets, Asset Management and Consumer & Wealth Management (newly formed). The changes will be as follows: The Investment Banking segment will now include the results from lending to corporate clients, including middle-market lending, relationship lending and acquisition financing, which were previously included in Investing & Lending.
Further, Institutional Client Services renamed as Global Markets will additionally include the results from providing warehouse lending and structured financing to institutional clients, earlier reported in Investing & Lending, and the results from transactions in derivatives associated with client advisory and underwriting assignments, previously reported in Investment Banking.
Moreover, Investment Management renamed as Asset Management will include the results from investments in equity securities and lending activities related to Goldman’s asset management businesses, including investments in debt securities and loans backed by real estate, which all were earlier part of Investing & Lending.
Notably, the newly-formed Consumer & Wealth Management will include management and other fees, incentive fees and results from deposit-taking activities associated with Goldman’s wealth management business, all which were earlier reported in Investment Management. Further, the segment will include the results from providing loans through the company’s private bank, providing unsecured loans and accepting deposits through the bank’s digital platform, Marcus by Goldman Sachs, and serving credit cards, all reported in Investing & Lending earlier.
Need of Revamping of Segments
Per Goldman, the changes “better reflect how the firm is now managed” and will “drive greater accountability” for moving the business forward. Notably, the bank’s move reflects its ongoing commitment for organizing the firm in a client-centric way.
Further, the aforementioned changes reflect chief executive officer David Solomon's efforts in making Goldman at par with other investment banks, including JPMorgan (JPM) and Citigroup (C), which cater consumer businesses on a large scale and comparatively provide more information to investors.
Notably, Goldman's consumer business, including Marcus and the bank's credit card, recorded revenues worth $822 million over the four quarters ended Sep 30, 2019, which represented 2.4% of total revenues during the period.
The bank’s new segment will provide details about Marcus, along with wealth management, the business Goldman aims to expand. Goldman’s decently-sized private bank serves the needs of the ultra-rich clients, but plans to target individuals with fewer assets as well and cater services to them.
Moreover, muted trading activities over the past year have also compelled Goldman to reorganize, as the trading was the most profitable area for the bank. Gradual achievements in the strategy are likely to support bottom-line expansion.
CEO David Solomon is expediting efforts to revamp the bank. We believe the execution of the restructuring moves will support the company’s prospects.
At present, Goldman carries a Zacks Rank #3 (Hold). Goldman’s shares gained around 37.6% in 2019 compared with 17.9% growth registered by the industry.
Stocks to Consider
E*TRADE Financial Corporation ETFC has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock rallied more than 3% in 2019. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JPMorgan Chase & Co. JPM has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares gained 42.8% in 2019. At present, it carries a Zacks Rank of 2.
State Street Corporation STT has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock jumped around 25.4% in 2019. It currently carries a Zacks Rank #2.
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