According to people familiar with the matter, the Federal Reserve is investigating Goldman Sachs Group Inc.’s consumer business GS -2.54% to determine whether the bank took appropriate safeguards when it expanded lending.
The regulator has concerns that the bank did not have adequate systems of oversight and control over the consumer store called Marcus, particularly as it grew, the people said.
The Fed is investigating whether Goldman exercised adequate oversight over Marcus and whether there are any management or governance issues, according to people familiar with the matter. The regulator is also investigating what happened in customer damage cases, including whether problems were reported internally and, if so, whether they were properly resolved, they said.
The investigation covers Goldman’s compliance functions as well as audit and legal, some of the people said.
Bloomberg News previously reported that the Fed is reviewing Goldman’s consumer business.
Goldman shares fell about 2% in afternoon trading.
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The investigation is another setback for Goldman’s ailing mass-market banking business, which started with much fanfare in 2016 with a high-yield savings account and personal loans.
The move into a consumer banking business owned by larger rivals like JPMorgan Chase & Co. and Bank of America Corp. being dominated was a major strategic shift for a bank better known for advising the rich and powerful. The idea was to make Goldman less dependent on its bread-and-butter investment banking and trading businesses, which tend to ride market ups and downs.
A sensational credit card partnership with Apple Inc. made its debut in 2019. Goldman invested billions of dollars in Marcus, which was named after the bank’s founder. But it was difficult to build up the credit card business. A long-awaited checking account never came about.
Goldman is now reducing consumer operations as part of a broader restructuring of its businesses. The bank is ending personal loans and has scrapped plans to offer a checking account on a broad basis.
“We were trying to do too much too quickly,” Chief Executive David Solomon said earlier this week when speaking to analysts about the consumer business.
Much of Marcus will be integrated into Goldman’s new wealth and wealth management unit. Some parts, including credit card partnerships with Apple and General Motors Co. and specialty lender GreenSky, are moving to a new unit called Platform Solutions. This deal has caused huge losses — more than $3 billion since 2020. The Fed investigation and related issues could result in additional costs.
Banks must operate sophisticated systems that monitor and protect both the bank and its customers. By law, it needs to know who its customers are and what they’re doing with their accounts, and monitor for suspicious activity. Regulators also want to see effective customer service and fraud protection as evidence of good management.
For the largest banks, the cost of these systems is spread across their vast customer base, but for smaller banks, they’re expensive burdens that have fueled industry consolidation. The Wall Street giant’s Main Street presence never matched that of its major banking peers.
The investigation grew out of a Standard Fed review of Goldman’s consumer business that began in 2021, people familiar with the matter said. It had intensified into an investigation in the past year, it said.
The Fed investigation comes at the same time as an investigation into Goldman’s credit card business by the Consumer Financial Protection Bureau. Goldman announced last summer that the CFPB is investigating its credit card account management practices, including how the bank fixes billing errors, gives cardholders refunds and promotes its cards.
Goldman had approximately $16 billion in outstanding credit card loans at the end of 2022. In addition to the Apple Card, the bank also issues General Motors Co. credit cards.
The two agencies are sharing information, people familiar with the matter said.
Write to AnnaMaria Andriotis at [email protected] and David Benoit at [email protected]
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