The U.S. Federal Reserve is probing whether Goldman Sachs Group Inc‘s consumer business had appropriate safeguards in place as the bank ramped up lending, the Wall Street Journal reported on Friday, citing people familiar with the matter.
Shares of the investment bank were down nearly 3% at $341.08 in afternoon trade.
The central bank is concerned the Wall Street giant did not have proper monitoring and control systems inside Marcus, its consumer unit, as it grew larger, the report said.
The probe, which grew out of a standard Fed review of the business in 2021 and intensified into an investigation last year, is also examining instances of customer harm and whether they were properly resolved, the report added.
Bloomberg News reported in September that the bank’s Marcus unit was facing a Fed review.
The probe would add to troubles for Goldman, which is executing a strategic pivot that includes refocusing on its core trading and investment banking business after losing money in its consumer banking venture.
“Another investigation into the consumer business makes Goldman’s foray into consumer look even worse, and can reduce management credibility, particularly given so many statements about GS’ ability to manage risk and build best-in-class platforms,” said Mike Mayo, banking analyst at Wells Fargo, in a note.
“The investigation, along with poor disclosure and other regulatory investigations, will increase the risk associated with owning GS and its cost of capital.”
Goldman’s credit card business is also being investigated by the Consumer Financial Protection Bureau (CFPB), the bank disclosed last year.