Headed into Q4 results due next week, Goldman investors were warily eying “Platform Solutions.”
The new unit came about as a result of the bank’s latest corporate remix (there’s a bad David Solomon joke in there) revealed in October.
Technically, the shakeup counts as the third reorganization in four years, but in some ways it looks like a rolling back of the last reshuffle. Asset management and private wealth will be rolled up, as will IB and Markets, while the consumer unit will be split into pieces and, for lack of a better word, redistributed.
While reporting Q3 results, Goldman pitched the shakeup as “the next step in our strategic evolution.” Again, I’d suggest it’s actually a step backwards, not necessarily in terms of where the firm is headed from a performance or an operational perspective, but rather literally. It feels, in part anyway, like a reversion to the old setup.
The firm is now arranged in three operating segments: The above-mentioned Asset & Wealth Management and Global Banking & Markets, as well as Platform Solutions, which combines the installment-lending firm Goldman bought in September of 2021 with the bank’s credit card businesses, including Apple Card. It’ll also include the bank’s corporate deposits operation. (The consumer-facing part of Marcus was folded up into wealth management.)
Goldman used the “old” setup whole reporting results last quarter. On Friday, in an apparent effort to prepare investors for next week’s results, the firm unveiled four quarters of figures for the new segments, as well as full-year results using the new structure for 2020 and 2021.
Platform Solutions lost money every quarter, with the losses accelerating materially in Q3, when the unit bled $612 million, up (or down, if you like) 67% on a sequential basis. The segment lost $783 million in 2020 and $1.047 billion in 2021.
The breakdown within the unit shows revenue nearly tripled during the first nine months of 2022 versus the full year 2020. Operating expenses have doubled using the same comparison (i.e., the first nine months of 2022 versus the full year 2020). Loss provisions look to be rising sharply. For the nine months ended September 30, they were $942 million, compared to $487 million for all of 2020 and around $700 million for all of 2021. I’d also note that revenue rose 10% QoQ in Q3 of 2022, while expenses jumped 32%.
Solomon, who championed Goldman’s troubled efforts to make inroads in consumer banking, is in the process of dismantling that dream. This is a slow-burning story, and I should note that losses were widely expected from Platform Solutions. Now we know the scope of those losses, and next week investors will get a look at how the unit performed in Q4.
All told, Platform Solutions lost more than $3 billion from 2020 through September of 2022. According to various reporting, that figure is likely to balloon with Q4 results. Apparently, most of 2021’s $1.05 billion pretax loss was related to Apple Card. Platform Solutions isn’t expected to break even until 2025.
Goldman made headlines last week for thousands of additional job cuts. The $1.2 billion Platform Solutions lost during 2022’s first nine months nearly offset the entirety of the profits logged by the firm’s Asset & Wealth Management segment over the same period.
