Exclusive: Goldman seeks deals to empower Marcus – sources

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

Goldman’s management has set an “extremely high” limit for any deal to be broad and transformative, the sources warn. One of the sources said the bank had M&A bankers scrutinizing numbers on “different ideas”.

Digital banking is an area of ​​interest. The pandemic has reinforced management’s belief that online business will be key to future growth within the industry and branches will continue to play a small role, the source said. As a result, executives are ruling out any deals involving the acquisition of subsidiaries. Digital assets that bring in new customers or unique technologies would be attractive to the bank, the source said.

Goldman Sachs declined to comment.

Building Marcus, named after one of the bank’s founders, is a key element of CEO David Solomon’s plan to reduce Goldman’s reliance on volatile trading and investment banking revenues. To do this, Solomon wants to build predictable revenue businesses like consumer banking and mass-market wealth management, which now have most of its main rivals.

In January last year, Solomon set three- and five-year financial goals for Marcus, as well as the company’s overall profitability. The three sources said the boom in investment banking and trading activities during the pandemic and the cost reductions made possible by remote working helped Goldman make significant progress on its profitability and cost reduction goals.

However, worried about loan quality in the midst of a recession, executives said they slowed growth in loans and deposits with Marcus.

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

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

It is expected to stick to its target of reaching $ 125 billion in deposits over the same period, anticipating market conditions will improve, the sources said. Total deposits amounted to $ 96 billion at the end of the third quarter.

Goldman plans to maintain its deposit target despite regulatory restrictions in the UK, and its decision to cut rates on US savings accounts slowed growth significantly in the second half of 2020, the sources say. The bank only added $ 4 billion in deposits in the third quarter, after adding $ 32 billion in the first half.

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

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

Last year, the bank resolved long-pending corruption investigations involving Malaysia’s sovereign wealth fund 1MDB, raising a cloud that can often keep regulators from by signing major acquisitions.

At the same time, regulatory sources have said that President-elect Joe Biden’s administration may take a more restrictive stance on authorizing banking deals than the Trump administration, meaning there may be a limited window to conclude large banking deals.

Furthermore, the bank has excess capital following last year’s US Federal Reserve decision to limit payments.

Reporting by Matt Scuffham; edited by Paritosh Bansal and Edward Tobin