The Atlanta Billionaire Behind Goldman’s Latest Consumer-Lending Push
David Zalik sold GreenSky to Goldman last year for about $1.7 billion. The deal has its doubters.
Written by AnnaMaria Andriotis and Peter Rudegeair
Feb. 9, 2023 5:30 am ET
A billionaire entrepreneur who owns more of Goldman Sachs Group Inc. GS 0.89%increase; green up pointing triangle than Chief Executive David Solomon is leading an effort to refresh the Wall Street stalwart’s Main Street lending ambitions.
Goldman is shrinking Marcus, its homegrown consumer-banking business. But it is doubling down on GreenSky, a home-improvement lender it bought last year over the objection of some senior executives.
At the center of the expansion is GreenSky co-founder David Zalik, an Atlanta entrepreneur who became a Goldman partner and one of its largest individual shareholders in the deal.
GreenSky employees were largely spared recent layoffs that hit other parts of the Goldman consumer operation hard, people familiar with the matter said. While Marcus is getting out of the business of making personal loans, one of its original consumer offerings, GreenSky is hunting for borrowers. It is preparing to roll out new credit offerings, including financing plans for homeowners looking to install solar panels, the people said.
The stakes are high for Mr. Solomon, who is trying to assure investors that Goldman is headed in the right direction. Under his leadership, the bank has realigned itself to focus on businesses like wealth and asset management that generate steady fees regardless of market conditions.
GreenSky is another priority, Mr. Solomon has said. “We think GreenSky is a good business that can be accretive,” or expected to boost earnings, he told analysts last month.
Yet the deal has had its doubters. Some deputies advised Mr. Solomon against buying GreenSky in 2019, people familiar with the matter said. He pounced when another bidder emerged, according to the people familiar and a regulatory filing.
Mr. Zalik and others are still ironing out exactly how GreenSky fits inside Goldman. The bank tried, and failed, to sell a GreenSky unit that financed cosmetic surgery and other elective medical procedures last year, people familiar with the matter said. It wants to focus on GreenSky’s business of lending to mostly creditworthy homeowners.
Marcus, Goldman’s homegrown consumer-banking business, is getting out of the business of making personal loans.
PHOTO: AMY LOMBARD FOR THE WALL STREET JOURNAL
Executives are exploring ways to pitch Goldman’s transaction-banking services to the more than 10,000 contractors and other companies that offer GreenSky loans to consumers, according to people familiar with the matter. Some business owners could also be pitched wealth-management services, they said.
One of Atlanta’s richest men despite ending his formal education as a teenager, Mr. Zalik stands apart from the Ivy Leaguers and MBAs that populate Goldman.
The son of a math professor, Mr. Zalik skipped high school to enroll at Auburn University just shy of his 14th birthday but dropped out after starting his first company. He went on to launch ventures in technology, real estate and banking before co-founding GreenSky in 2006.
Home-improvement loans came first. GreenSky recruited retailers such as Home Depot Inc. to offer financing for shoppers looking to renovate a kitchen or install new windows. The company later expanded into financing cosmetic surgeries and other elective procedures. By 2018, it was making $1 billion in loans per quarter, funded by a small group of regional banks. And it was profitable, a rare feat for an online lender at the time.
A 2018 initial public offering, arranged in part by Goldman, valued GreenSky at about $4 billion. Mr. Zalik sold $384 million of stock in the offering and was left controlling a little less than half of the company. He bought a 164-foot yacht, Ocean Z, that he uses to travel to Baker’s Bay, according to people familiar with the matter, an exclusive enclave in the Bahamas where both he and Mr. Solomon have vacation homes.
Soon though, investors soured on GreenSky. Banks pulled back from funding its loans and the company started missing Wall Street’s expectations. In August 2019, GreenSky started exploring a potential sale.
Goldman, on the hunt for deals to increase Marcus’s user base, took notice. But some executives had their doubts after reviewing the company’s prospects, according to people familiar with the matter.
A sweeping reorganization at Goldman largely dismantles the consumer business.
PHOTO: PETER MORGAN/ASSOCIATED PRESS
Pitching deposit accounts or other Marcus products to GreenSky borrowers wouldn’t be easy, they argued, because customers apply for their loans through third parties. The high price Mr. Zalik wanted for the company was another problem, they told Mr. Solomon.
Goldman offered to buy GreenSky in late 2019 for $7 per share, or roughly $1.3 billion, in cash, according to a regulatory filing, before merger talks ended a few months later.
The sale effort went dormant until mid-2021. Goldman came back to the table, and talks heated up after private-equity firm Apollo Global Management Inc. submitted a bid, people familiar with the matter said. Mr. Zalik told Mr. Solomon that GreenSky was close to a deal and Goldman needed to act fast if it was still interested, according to a regulatory filing.
Mr. Solomon and Stephanie Cohen, then Goldman’s global co-head of consumer and wealth management, wanted to show momentum in the consumer business, according to people familiar with the matter. The company upped its prior offer to about $12 per share, or roughly $2.2 billion.
Mr. Zalik agreed to forgo hundreds of millions of dollars that would be due to him under a tax-receivable agreement and to forfeit Goldman shares worth about $120 million if he quits before the second anniversary of the deal closing.
The two companies announced the deal in September 2021. It closed in March 2022 at a final price tag of about $1.7 billion due to a decline in Goldman’s stock price.
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Almost immediately, Goldman put GreenSky’s healthcare-finance unit up for sale, according to people familiar with the matter. Goldman executives were concerned about the reputational risk of being involved with a business that finances elective procedures and cosmetic surgeries, some of the people said. The loans, which accounted for a small share of GreenSky’s volume in 2021, attracted less creditworthy borrowers who were more likely to default on their debt, the people said.
Goldman pulled the offering, following lackluster interest.
In October, Goldman announced a sweeping reorganization that largely dismantled the consumer business. The bank, Mr. Solomon told analysts on a recent earnings call, had tried to do too much, too fast.
The Federal Reserve is investigating Goldman’s consumer business to determine whether the bank had appropriate safeguards in place as it ramped up lending, The Wall Street Journal previously reported.
GreenSky is now part of Goldman’s Platform Solutions business, which also houses its Apple Card partnership. The bank recently disclosed that the unit has lost billions of dollars since 2020, in large part due to money set aside to cover potential loan losses.
Last year was among GreenSky’s best ever for loan growth, according to people familiar with the matter. The business is still run much like it was before the acquisition. Most of GreenSky’s employees are based in Atlanta, far from Goldman’s home base in New York City.
Unlike other Goldman employees who are expected be in the office five days a week, Mr. Zalik spends much of his time on the road meeting merchants and working from his Atlanta home or from his yacht, according to people familiar with the matter.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Peter Rudegeair at peter.rudegeair@wsj.com
Appeared in the February 10, 2023, print edition as 'Big Investor Directs Goldman’s New Consumer-Lending Push'.
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