Gold­man’s re­tail bank­ing arm of­fers per­sonal loans, CDs

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - KEN SWEET

NEW YORK — Gold­man Sachs, long known for its af­flu­ent clients and well-con­nected ex­ec­u­tives, is start­ing to act a lot more like a neigh­bor­hood bank.

The most Wall Street of Wall Street firms re­ally wants peo­ple to start think­ing about it the next time they need to open a bank ac­count or bor­row money. It’s pay­ing aboveav­er­age rates on on­line sav­ings ac­counts and of­fer­ing that stodgi­est of in­vest­ments, good old-fash­ioned cer­tifi­cates of de­posit. Per­sonal loans are avail­able through its Mar­cus brand, a friend­lier ref­er­ence to co-founder Mar­cus Gold­man.

For a firm that never had a rea­son to ad­ver­tise, Gold­man now runs Mar­cus com­mer­cials with the ca­sual tag line: “Debt hap­pens.”

Dur­ing most of its nearly 148-year his­tory, the main way to do busi­ness with Gold­man was to be in­cred­i­bly wealthy or the chief ex­ec­u­tive of a ma­jor com­pany. That’s chang­ing.

“We want to grow a ro­bust con­sumer bank­ing busi­ness,”

said Stephen Scherr, Gold­man’s chief strat­egy of­fi­cer and CEO of GS Bank.

Gold­man’s re­tail bank­ing busi­ness is less than 2 years old and tiny com­pared with the over­all size of the firm. The com­pany hasn’t yet even bro­ken it out as a busi­ness line in its quar­terly fi­nan­cial state­ments be­cause of its size. And Gold­man isn’t back­ing away from its tra­di­tional strengths: trad­ing and ad­vis­ing.

Trad­ing is in­her­ently a volatile busi­ness, and a quiet mar­ket weighed on Gold­man’s sec­ond-quar­ter re­sults posted Tues­day. It earned $1.63 bil­lion, or $3.95 a share, ba­si­cally un­changed from a year ear­lier. The di­vi­sion that con­tains its trad­ing desks had rev­enue of $3.05 bil­lion, down 17 per­cent. Fixed in­come, cur­rency and com­mod­ity trad­ing rev­enue fell 40 per­cent, and Chief Fi­nan­cial Of­fi­cer Martin Chavez said its com­modi­ties di­vi­sion had its worst quar­ter since the

firm went pub­lic in 1999.

Gold­man ex­ec­u­tives see the new con­sumer bank­ing di­vi­sion as a way for the firm to ex­pand into busi­nesses it tra­di­tion­ally wasn’t in­volved in. But how well Gold­man’s brand and im­age might ap­peal in the con­sumer busi­ness re­mains to be seen.

“I had a few read­ers tell me that they had no in­ten­tion to do busi­ness with Gold­man, but those com­ments were pretty limited,” said Ken Tu­min with De­positAc­counts.com, a re­view site for sav­ings ac­counts and other bank prod­ucts.

The con­sumer prod­ucts Gold­man is of­fer­ing are pretty con­ven­tional. An on­line sav­ings ac­count with its GS Bank re­quires no min­i­mum open­ing de­posit and pays an in­ter­est rate of 1.20 per­cent. Look­ing for longer-term sav­ings? Gold­man of­fers CDs with terms from six months to six years, pay­ing as much as 2.30 per­cent. And fixed-rate, no-fee per­sonal loans are avail­able through Mar­cus by Gold­man Sachs.

Bank ex­ec­u­tives aren’t say­ing

what fu­ture prod­ucts they may of­fer. An­a­lysts say it’s not un­rea­son­able to think Gold­man may con­sider check­ing ac­counts and stu­dent loans. Just don’t ex­pect Gold­man to be open­ing branches any­time soon, or ever.

“What­ever size it’s go­ing to be, it’s go­ing to be en­tirely a vir­tual busi­ness,” said Michael Wong, an an­a­lyst at Morn­ingstar.

Gold­man’s path to Main Street has its ori­gins in the fi­nan­cial melt­down of 2008.

At the height of the cri­sis, Gold­man and its ri­val Mor­gan Stan­ley — both try­ing to avoid the bank­ruptcy fate of Lehman Broth­ers — con­verted from in­vest­ment banks to com­mer­cial banks. They did this largely to gain ac­cess to emer­gency tools the Fed­eral Re­serve cre­ated to sup­port the fail­ing fi­nan­cial sys­tem.

Gold­man could then ac­cept and hold de­posits. But it did lit­tle with its com­mer­cial bank la­bel for years.

That changed in 2015, when Gold­man an­nounced it wanted to buy the de­posits of GE

Cap­i­tal, and later an­nounced it had hired Harit Tal­war from Dis­cover Fi­nan­cial Ser­vices to ex­plore cre­at­ing a con­sumer lend­ing busi­ness. The pur­chase of $16 bil­lion in de­posits from GE pro­vided the firm a sta­ble source of fund­ing. Gold­man opened GS Bank in mid2016 and started test­ing Mar­cus later that year.

Along with it open­ing up Gold­man to new forms of busi­ness, the de­posits are at­trac­tive for an­other rea­son: Un­like other forms of cap­i­tal, de­posits are less likely to fall in times of mar­ket stress.

Gold­man has since added $5 bil­lion in de­posits to GS Bank on top of the $16 bil­lion it bought. Mar­cus, which launched less than a year ago, has made $1 bil­lion in loans to con­sumers. The firm ex­pects to do an­other $1 bil­lion in loans by the end of the year.

“We’re very ex­cited about cross­ing the $1 bil­lion mark, but it’s been more im­por­tant to do it as a re­spon­si­ble lender. We don’t want to cause more stress for our bor­row­ers,” Tal­war said.

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