“It’s not our intention to compete with the big commercial lenders and the big consumer lenders.”
~Lloyd Blankfein
First thing you probably think about when you hear this story is f#ck these guys. They’re opening a bank for the super wealthy; it is insulting. But this move is actually a very good thing because it is a move towards safe and stable, boring banking. Goldman Sachs has never catered to the interests of the common person anyway … but now – instead of treating its bets like something in a casino like it had been doing for years …. Goldman Sachs – the world’s premiere investment bank is going for boring if not elitist banking. And that’s quite a good thing.
Reuters has the story HERE:
The new unit will also lend more directly to corporations, some of which already make investments and do business with Goldman. Bank executives have set a goal of $100 billion in loans, up from $12 billion at the end of March, the Journal said.
Goldman has no plans to open retail branches, build a network of automated teller machines, pitch credit cards or “give away toasters,” Chief Executive Lloyd Blankfein told the Wall Street Journal.
Goldman converted into a bank holding company at the height of the financial crisis in 2008 to access emergency funds from the Federal Reserve.
However, like other investment banks, Goldman currently funds most of its activities by borrowing cash against its store of securities holdings, a strategy that left it dangerously exposed during the 2008 turmoil, the paper said.
Lloyd Blankfein – the CEO of Goldman Sachs – has already said that they’re not interested in competing for the bank accounts of the common folk.
FoxBusiness spoke to him HERE:
Mr. Blankfein Wednesday said the securities firm had now internalized the view that it is a bank. “It’s not a question of, ‘Should we do banking activity?’,” he said, noting that the company already bears the costs and limitations of a Federal Reserve-supervised bank.
Mr. Blankfein, who was interviewed before the luncheon guests gathered in Washington’s Ronald Reagan Building, spoke about why Goldman’s public image took such a beating during the financial crisis.
He conjectured that the harsh criticism of the bank was driven partly by the fact that the company deals mainly with other institutions, rather than consumers.
But here’s why they’re doing this. Revenues are down 9% and profits are down 12% for the 2nd quarter; that’s a lot of money. Reuters reports HERE:
But the bank’s net revenue dropped 9 percent in the quarter, faster than the bank cut costs. Goldman’s return on equity – a measure of how effective it is at wringing profit from its balance sheet – was just 5.4 percent. Before the financial crisis, its return on equity was routinely above 30 percent.
“We are not going to have an acceptable return on equity in this environment,” Goldman’s chief financial officer, David Viniar, said on a conference call with investors.
The results were not strong, but did beat analysts’ average forecasts, lifting the bank’s shares 0.2 percent to $97.86 in afternoon trading.
As traditional investment banking businesses struggle to grow, Goldman is looking at more conservative ways to earn money, such as gathering more deposits and making more loans. This traditional commercial banking business would have been anathema to Goldman before the crisis.
Additionally – Goldman is selling their in house hedge fund for $500 million. This is apparently unrelated to the Dodd-Frank law that requires a division between hedge funds and commercial banking … however it is pretty clear they’re not looking to expand in the more risky hedge fund investment models at least for the moment. The Wall Street Journal reports HERE:
Goldman agreed to sell its Goldman Sachs Administration Services unit to State Street Corp. for $550 million in cash. The unit is a hedge-fund administration business, meaning it does back-office and paperwork for hedge fund clients, actions like helping the funds calculate net-asset values and profit-and-loss statements on a daily basis.
For Goldman, it was a relatively small business that does not impact its ability to continue catering to hedge funds as a prime brokerage unit, which it views as an important business. (The move also has nothing to do with the so-called Volcker Rule, which restricts Goldman’s ability to use its own money in trading and investing in hedge funds.)
Chief Financial Officer David Viniar told analysts on Goldman’s earnings conference call that the unit had little capital tied up in it and wasn’t material to the company.
