How much money will Goldman Sachs have to spend in order to fix its mistake?
Goldman Sachs, a Wall Street bank that has long been known to cater to large corporations and wealthy clients revealed on Tuesday the latest results of its five-year-old effort to provide savings and loans to the less fortunate. Goldman Sachs said that it had sold some of these down-market loan products and admitted defeat on other, resulting in nearly $500 million of losses.
Goldman admits to a new failure in this area every few months. In October, Goldman split its shaky consumer offerings into two separate divisions, one for credit card partnerships, and another for interest-earning account. Three months later the bank revealed that it had lost more than $3 billion on this business in the past years.
Goldman Sachs is a large lender, but the constant bleeding is not a small issue. The bank earned $3.2 billion during the first quarter, beating expectations of investors and largely avoiding the recent deposits runs that have roiled many regional banks. However, the total amount would have been higher without the consumer banking troubles.
Denis Coleman told analysts, in a sign that this dreary business is not over, that Goldman still has billions of dollars worth of consumer loans, despite only finding buyers for $1 billion.
Goldman's shares were down by nearly 2 percent as of Tuesday's close.
The majority of banks are suffering from a drop in corporate deals, such as initial public offerings, mergers and purchases, and other areas that bring in large fees. Since the collapse of Silicon Valley Bank last month, many of these transactions have been put on hold. The bank was taken over by regulators due to a run, which raised fears about wider financial problems. In Europe, Swiss officials arranged for the acquisition of Credit Suisse, a troubled bank, by UBS, a healthier competitor.
Goldman was one of the banks that put together a package to rescue a third bank, First Republic. First Republic has managed to avoid collapse so far, despite a sharp drop in deposit levels.
David M. Solomon said that the general investing climate has shown some signs of improvement, but levels are still low.
Goldman's bigger rivals were even helped by the turmoil. Bank of America reported a $3 billion first-quarter profit on Tuesday. It also said that it had seen a net increase of customer deposits over the past few weeks, despite the fact that the overall figure for the first quarter was down.
Alastair Bothwick, chief financial officer at Bank of America, said: "We clearly benefited."
JPMorgan Chase, Citigroup, and Wells Fargo all beat the expectations of profits last week after they gained deposits from smaller banks.
Goldman has the reputation of being the most recognizable name on Wall Street. However, with a consumer business that is so young, it lacks the buffer of its larger competitors. As a primarily investment bank and corporate advisor, Goldman Sachs is relatively protected from the threat of wider bank runs.
Under Lloyd C. Blankfein's former chief executive at Goldman Sachs, the Marcus consumer banking division was launched. It grew under Mr. Solomon. Solomon recently indicated that he wants to leave the consumer banking business. He said that the bank is looking to sell a large portion of this unit, and that they are considering other options. The fact that Goldman still holds on to some of its portfolio shows the bank's inability to exit the consumer business quickly.
The lender still tries to stay in the game. Goldman announced on Monday that it will accept deposits from Apple users, who Goldman has already offered a Goldman credit card to. Goldman declined to disclose how it would invest the deposits. The new accounts are expected to yield 4.15 percent per year.