Goldman’s lacklustre results underscore need for new products

By Ryan Weeks on Thursday 18 January 2018

Alternative Lending

Could the investment bank’s new lending activities help turn things around?

Could the investment bank’s new lending activities help turn things around?

Investment banking behemoth Goldman Sachs lost money in the fourth quarter of 2017, prompting a wave of coverage questioning its invincibility. Its results were highlighted by a quarterly net loss of close to $2bn.

A one-off $4.4bn charge stemming from new tax laws in the US is in part to blame for the losses, but Goldman's buying and selling of bonds, commodities and currencies – once the jewel in its crown – generated just $1bn in revenue, half what it accounted for in the same period of 2016. Meanwhile net revenue in its trading business fell 30 per cent for the year.

It may be argued, however, that Goldman anticipated this. A presentation given by its president and co-chief operating officer Harvey M. Schwartz in September 2017 singled out online lending initiatives as the bank’s biggest revenue driver for the next three years.

Goldman expects to make more than $2bn in net revenues from its lending and financing efforts by 2020. The importance of these activities becomes all the more pronounced in the context of the bank’s dwindling trading revenues.

Over the past couple of years, Goldman has been busily building up a consumer lending and deposit platform named Marcus. As of September 2017, it had attracted more than $15bn in retail deposits, and by the summer of 2017 had already lent $1bn. It is expected to have generated $1bn in revenues for the bank by 2020.

James Newsome, managing partner of Arbour Partners, offered comment on Goldman, warning that it would be “rash to extrapolate too much from one particularly bad quarter”, given special events and temporary factors driving investment bank results at present.

“But for important businesses like fixed income trading, the rise of alternative finance and fintech firms is undeniably having an effect on the core long-term drivers of the investment bank model – keeping talent and the costs of acquiring customers,” he continued. “That’s why Goldman itself recently announced belated investment in its own online lending business. While the banks are trying to catch up it is getting harder for them to attract talent in growth areas, where fintech firms are consolidating. Bank leadership is due for a refresh.”     

Arbour Partners is a consultancy firm which advises leading global non-bank lenders, with clients including marketplace lending platform Funding Circle and trade finance firm Falcon Group.

Peter Renton, founder of Lend Academy, an educational resource for the peer-to-peer lending industry, also weighed in: The recent financial results from Goldman Sachs only underscores the importance of new initiatives like Marcus for their business. The personal loan market is huge and I have no doubt Marcus can be a very large and profitable player in this space. Whether or not it can replace the declines in the other areas of their business is up for debate but as the Marcus brand grows in prominence it will become an important revenue driver for the company.

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