Hard to believe, isn’t it, but the venerable investment bank is really invested in its fintech units delivering high growth income streams over the coming years to replace diminishing returns on some of its older business units. Its GS Bank “Main Street” division saw deposits increase from $88B in 2015 to $115B in 2016, with only 5 locations in New York, and its online lending unit Marcus is just starting to get traction and growing faster than anticipated.
“Goldman Sachs’s internal technology revolution cannot come soon enough.
The Wall Street firm’s young online retail-banking unit is growing and could, once big enough, crank out far higher returns than the investment bank. Goldman could do with some of that extra juice.
At 11.4 percent, Goldman’s annualized return on equity for the quarter places it in the upper echelons of the industry, along with the likes of JPMorgan Chase and Wells Fargo. The trouble is, the return depended upon a low tax rate, which followed from a new accounting rule relating to the settlement of share awards. Without that benefit, Goldman’s return for the quarter would have been just 8.9 percent – below the rule-of-thumb 10 percent needed to cover the cost of capital…
Goldman’s fledgling Main Street operation is a bright spot. With more than $115 billion in deposits, it’s already one of the top 25 banks in the United States by that measure. Marcus, as the online consumer-lending unit is called, is experiencing “demand more robust than we thought,” the unit’s boss, Harit Talwar, said recently.
Marcus, like fintech rivals, offers a simpler, quicker, more flexible service than many traditional banks. But it also benefits from Goldman’s deep pockets and cheap funding. That ought to give it an edge. Consumer lending can earn at least a 3 percent return on assets — triple what Goldman has been managing as a whole of late. And Mr. Blankfein’s firm doesn’t have branches and legacy technology costs to worry about…”