Hunting where the brass is greener?

Brass has one property gold does not. The former has some magnetic qualities. The institution synonymous with the latter symbol of wealth, Goldman Sachs, sees the attractions of brass too.

After launching a Main Street bank, Marcus, three years ago, its latest shift towards the wider consumer market is digital wealth management. It plans to roll out a robo advisory for those with as little as $5,000 to invest. These folks may have less to invest, but there are many more of them. Yet that same pull towards a mass market risks tarnishing Goldman’s gilt-edged brand.

This shift has been under way for some time. The May purchase of United Capital, a US wealth manager with about 22,000 clients holding $25bn in assets, hinted at a more aggressive expansion strategy . Coupled with Marcus and forays elsewhere into lower-cost wealth management Goldman has unashamedly aimed lower.

CEO David Solomon sensibly aims to reduce the bank’s earnings volatility inherent in its investment banking division. Has his shift away from the precious few to the magnetic many made a difference? Not so far. The Goldman Sachs share price trails its peers in the S&P Financial index by 39%, including dividends, over three years. Since that time, the bank has continued to trade just below its book value. Goldman Sachs has plenty of catching up to do. JPMorgan has a price to estimated book ratio approaching its decade highs at 1.8 times.

In its defence, the bank argues taking on less wealthy clients provides a platform for growth. It can profitably mine its own client base to enable children of wealthy parents to benefit from the brand. But its other efforts hint at a more populist lean. What Goldman wants to be is not clear. Perhaps a glimpse of that will come in January’s annual investor day. Goldman needs more mettle in its business, just not the baser kind. /London, December 10

© The Financial Times 2019