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Goldman Sachs Signals Partial Denial of Customer Service (Copy) | Archives

 

NEW YORK (AP) — Goldman Sachs no longer wants to be a bank for everyone.

The legendary investment bank spent eight years trying to expand its business beyond the corporations and the wealthy. But in recent months, Goldman has signaled a partial abandonment of those efforts, scrapping plans to create a checking account widely available to the public and mothballing its personal lending business. The popular savings account and credit card business still exists.

The bank said last week that it had accumulated $3 billion in losses in its consumer finance franchise since 2020, mostly money set aside to cover potential loan losses in its consumer finance business. Banking regulators are reportedly looking into whether the consumer business had proper safeguards in place as it grew.

The retreat in consumer banking comes as Goldman attempts to refocus on its roots: advising corporations on deals, investing and trading, and serving the wealthy. The firm’s income from investment banking, trading and asset management accounted for two-thirds of total revenue last year.

“I think it became clear to us in early 2022 that we were doing too much, that it was affecting our results,” David Solomon, chairman and chief executive officer of Goldman, told analysts when the bank reported its results earlier in this month.

Goldman’s commitment to consumer banking was one of the biggest changes in the firm’s 154-year history. The investment bank had to legally transform into a bank holding company in 2008 during the financial crisis to access the Federal Reserve’s emergency funding operations. This has led to jokes in the industry that Wall Street titan Goldman Sachs is about to release something as trite as an ATM card.

The jokes became reality when Goldman bought the assets of GE Capital and opened an online-only savings account with an above-market interest rate. The savings account was a surprise hit for Goldman, waiting lists formed after its initial launch both in the US and later in the UK.

Solomon told investors the online savings account is here to stay and the company considers it an asset. The firm currently holds more than $100 billion in retail deposits, a cheap form of capital for an investment bank that has historically been denied access to such forms of funding.

Launched with great fanfare in 2016 with a massive advertising campaign under the Marcus brand, the retail lending business has become a bottleneck for the bank. Goldman Sachs executives acknowledged at the time of launch that the Marcus brand was created to give Goldman — with its appearance as a power broker between Washington and Wall Street — a much friendlier and more accessible edge.

Unsecured personal loans, mostly used by customers to consolidate credit card debt, have become a burden during the coronavirus pandemic, with millions of Americans no longer able to pay their bills. The bank has set aside billions of dollars to cover potentially bad loans, and unlike other major banks that were able to release those reserves in 2021 and 2022, Goldman has largely had to keep increasing its reserves. New accounting standards that require banks to more aggressively model potential loan losses also contributed to the decision to wind down the retail lending business.

The massive losses have drawn the attention of banking regulators, who are also looking into Goldman’s private lending operations. The Wall Street Journal reported on Friday that the Fed was investigating whether the firm had adequate guarantees on its personal lending business when it ramped up lending.

“The Federal Reserve is our primary regulator of federal banks, and we do not comment on the accuracy or inaccuracy of matters relating to discussions with them,” a Goldman Sachs spokesman said.

Investors have long questioned Goldman’s need for consumer lending. In its quarterly results, the bank kept consumer banking under the umbrella of its wealth management division, leading to criticism that Goldman is hiding Marcus’ losses from its investors.

“We never understood (Goldman’s) desire to expand into the consumer market so much given the strength of its 150-year franchise in the capital markets,” wrote Mike Mayo, longtime banking industry analyst at Wells Fargo Securities. in a note to investors.

One area Goldman isn’t deviating from is the relatively new credit card business, which the firm calls platform solutions. The firm is the underwriter of the Apple Card, a popular credit card deeply embedded in Apple Pay launched in 2019, as well as a co-branded credit card with General Motors. In October, Goldman and Apple announced that they were extending their relationship until the end of the decade. The platform’s solutions also include GreenSky, a fintech lender specializing in home renovation loans, which the bank bought in 2021.

While the Apple Card and GM Card were a major acquisition for Goldman, the new business was not without headaches for the firm.

The bank said in August that the Consumer Financial Protection Bureau, the national financial regulator, was investigating its management of credit card accounts, including problems with billing, credit reporting, dispute resolution and other routine credit card issues.

Copyright 2023 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or distributed without permission.

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