It’s the end of Goldman Sachs as we know it

Lloyd Fonzie Blankfein

'For Goldman Sachs, the question is: What will they become when they grow up'.

The bank has radically redefined itself in the wake of the global financial crisis, and Goldman Sachs feels fine.

Goldman Sachs is spreading its wings after years of attempting to retreat from Wall Street's limelight in the wake of the global financial crisis.

That means exporting the bank's brand into new markets, making deals and striking partnerships, and probably using competitors' weaknesses against them. Now, its next challenge comes not from the traditional businesses upon which the bank has built its reputation, but Goldman Sachs ' quiet push into consumer businesses long occupied by its Wall Street competitors.

"For Goldman Sachs, the question is: What will they become when they grow up," said CLSA banks analyst Mike Mayo.

It's also a matter of how the bank grows up. While Goldman is going digital, it is not expected the bank will make any big deals in a financial technology sector that has generated outsized valuations recently. The bank already acquired online wealth manager Honest Dollar in March. The build-out of its online lending program, for now dubbed "Mosaic," is an internal priority for the bank.

For Goldman Sachs, which has already placed various early-stage investments into fintech companies , partnerships may be more common than mergers and acquisitions.

Two sources said Goldman had selectively spoken with companies, including online lenders, about expanding its network of partnerships among fintech start-ups. The bank declined to comment regarding digital plans. But, last week, Goldman announced plans to sell investments developed by online investment platform Motif.

Goldman's push into digital businesses comes at a critical time. As Wall Street banks are shedding traditional high-paid staff, like traders and bankers, Goldman is hiring developers to build apps and work on consumer-facing products. In fact, while most Wall Street banks shrank in the wake of the financial crisis, Goldman grew, though it took until 2015 for the bank's total staffing headcount to surpass its 2007 high of 35,500 (as of the end of last year, it was 36,800).

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The bank's push into consumer businesses will also have the bank lending to more clients in a rising rate environment expected to benefit all lenders. For that, the bank hired Discover Financial Services executive Harit Talwar. According to the bank's job postings on LinkedIn , it is continuing to add staffers for various digital initiatives. But that doesn't mean the bank is hiring everywhere; a recent Wall Street Journal report said the bank is planning a cull within its trading division.

At Goldman's annual shareholder meeting, CEO Lloyd Blankfein said the bank's executives remain "sharply focused on our cost structure."

It took a while, but the bank got its groove back in the businesses for which it is best known. As the global economy has regained its footing, so has Goldman.

The resurgence of the bank has included perhaps its most valued business, investment banking. In 2007, before the financial crisis took hold, Goldman Sachs' wallet share (or the amount of revenue from M&A compared to competitors) was 10.2 percent. That fell to as little as 8.4 percent, in years after the crisis, but ultimately rebounded to more than 11 percent in 2015, and 10.6 percent so far this year, as of mid-May, according to Dealogic.

And while some of the bank's moves bear similarities to competitors, it seems likely Goldman will break from tradition in other ways. For one, while Goldman earlier this year began its foray into consumer savings , the bank likely has no desire to massively expand headcount and expenses as part of reaching out to a broader client base. While Goldman's competitors must trim down the size and number of branches they operate as consumers' tastes shift to the smartphone, the bank can afford to sit back and wait for customers to log into new accounts.

The more cash Goldman holds, the better it is for the bank — and the tougher it is on competitors, especially with interest rates expected to rise in coming years. Some of Goldman's consumer foray would not have been possible prior to the financial crisis and the bank's 2008 conversion to a bank holding company to stave off market turmoil.

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At the end of 2015, Goldman held a little more than $135 billion in deposit dollars.

It only amounts to a little more than 10 percent of the top Wall Street banks, like JPMorgan Chase , which is the largest bank by deposit with more than $1.1 trillion as of the end of last year. This has Goldman in 17th place by deposit size at the end of last year, according to the Federal Reserve . But if the bank gains market share against competitors like Bank of America and Wells Fargo , the second and third largest banks by deposits as of the end of last year, respectively, it will also reap billions it would have stored at the Fed, which pays interest to Wall Street banks. And that, in turn, means less interest for its competitors.

The bank hasn't yet illustrated concrete plans for the consumer side of its business, said Deutsche Bank analyst Matt O'Connor. But, analysts appear to agree: Goldman Sachs is not coming to Main Street, at least in the physical form.

"I don't think you're going to see Goldman Sachs buying branches all over the country," said Fitch Ratings analyst Justin Fuller. "I'm fairly certain you won't."

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