The Federal Reserve is reportedly investigating Goldman Sachs' (GS) consumer business determine whether the bank had appropriate safeguards in place as it ramped up lending.
The regulator has concerns that the bank didn’t have proper monitoring and control systems inside the consumer business, known as Marcus, especially as it grew larger, the Wall Street Journal reported, citing people familiar with the matter.
The Fed is looking into whether Goldman has exercised appropriate oversight over Marcus and whether it has management or governance problems.
Officially known as “Marcus by Goldman Sachs,” the service is an online-only bank offering high-yield savings accounts, high-yield and penalty-free certificates of deposit (CDs), and no-fee personal loans.
Goldman invested billions of dollars in Marcus, which was named after the bank’s founder.
The regulator is also examining what happened in instances of customer harm, including whether issues were flagged internally and, if they were, whether they were properly resolved.
The probe grew out of a standard Fed review of Goldman’s consumer business, which started in 2021, and intensified to an investigation last year.
Goldman Sachs reported weaker-than-expected fourth quarter earnings on Jan. 17 amid a slump in investment banking revenues and a bigger-than-expected booking for potential credit losses.
The Federal Reserve did not immediately respond to a request for comment.
"As we told the Wall Street Journal, the Federal Reserve is our primary federal bank regulator and we do not comment on the accuracy or inaccuracy of matters relating to discussions with them," a Goldman Sachs spokesperson said.
Goldman Scaling Back Consumer Operation
Goldman’s Platform Solutions segment — which includes Apple Card, home-improvement lender GreenSky and a portion of Marcus business aimed at corporate clients — has lost more than $3 billion since the start of 2020.
Overall, Platform Services lost $783 million in 2020, $1.05 billion in 2021 and $1.21 billion in 2022 through Sept. 30.
Earlier this month, Goldman unveiled plans to eliminate around 3,200 positions, the bulk of them centered around its trading and banking divisions, following a traditional end-of-year review led by CEO David Solomon.
The Fed investigation is occurring at the same time as a Consumer Financial Protection Bureau probe into Goldman's credit card business.
Goldman disclosed last summer that the CFPB is investigating its credit card account management practices including how the bank resolves bill errors refunds car holders and advertises its cards.
Goldman is now scaling back the consumer operation as part of a broader reshuffling of its businesses. The bank is discontinuing personal loans and has scrapped plans to offer a checking account broadly.
“We tried to do too much too quickly,” Solomon said of the consumer
business on a call with analysts earlier this week.
Goldman's troubles may call to mind the difficulties that faced Wells Fargo (WFC), which reached a $3.7 billion settlement with the CFPB in December.
The fine added to a $3 billion payment made in 2020 to the U.S. Department of Justice and the SEC following accusations of fraud and illegal sales tactics related to the so-called "fake account" scandal.
The company is also operating under an asset cap under a deal it reached with the Federal Reserve in 2018.
