Goldman Sachs Expands From Small Firm to Finance Titan

Goldman Sachs’s impressive history suggested it could take on anything. After all, its alumni have held seats of power at both political parties at the White House; managed mighty hedge funds and private-equity firms; led major financial institutions and more.

But is this move wise? Marcus Bank offers consumer banking products such as online savings accounts and personal loans under its Marcus brand. But is that decision wise?

It’s a Bank

Goldman Sachs had long been known for serving the financial needs of wealthy companies and individuals on Wall Street. But in response to the 2008 global financial crisis, the firm decided to diversify into retail lending and cash management and become a banking holding company subject to much greater regulatory oversight – an act which has drastically reshaped an era of high finance that defined modern Gilded Age finance.

Goldman Sachs made this decision due to concerns raised by major investors regarding the increasing risks posed by derivatives backed by subprime mortgage loans and sudden credit rating downgrades (like that experienced by Long-Term Capital Management in Spring 2006). To combat these threats, the firm decided to offload its portfolio of such securities and focus on making traditional corporate loans instead.

Goldman Sachs’ new business lines are beginning to take off. Goldman was recently selected to underwrite a large municipal bond sale in Nashville to finance a new stadium for the National Football League’s Tennessee Titans; additionally, Marcus consumer loan has generated over $1 billion worth of loans so far.

New expansions include cash management services for corporate customers and the establishment of GS Bank – both designed to add steady sources of revenue while diversifying overall finances of the firm. CEO David Solomon hopes these latest moves will add steady sources of income while further diversifying overall finances of GS.

Goldman Sachs’ Delaware expansion aims to maintain competitive strength against JPMorgan Chase, which already has an equivalent presence there, as well as to keep up with rival firms that are rapidly growing their presence there. Furthermore, this development signals their push into retail finance, where competitors such as Capital One are expanding rapidly.

Goldman Sachs officials selected Delaware over Texas, Utah and Illinois due to its substantial pool of finance workers and proximity to New York City. Officials are in negotiations with Delaware’s private economic development agency regarding possible taxpayer grants; however Garcia insisted her division remains committed to Wilmington no matter any incentives offered.

It’s a Broker

The legendary investment bank has once more taken back its place at the helm of Wall Street equities trading, posting stellar quarterly results that its traders are reveling in.

Goldman Sachs today stands in stark contrast to the firm founded in 1869 by German immigrant Marcus Goldman and Samuel Sachs; that original firm aimed at being seen as an exemplar of American capitalism without engaging in asset market speculation.

Early successes spurred an extraordinary boom that transformed it into one of Wall Street’s darlings, providing expert advice on mergers and stock offerings while making daring bets with its own money. At its peak, it generated pre-tax profits of more than $2 billion annually while operating with virtually no regulatory oversight.

Morgan Stanley and Goldman Sachs once reigned supreme among Wall Street firms, landing headline-grabber deals while offering advice to companies and governments around the globe on mergers, stock offerings and restructurings. But as investors began losing trust in how these firms gambled with their own capital and expanded into obscure securities that often proved opaque, Morgan Stanley and Goldman Sachs declined dramatically in business.

As the credit crisis deepened, investment banks became caught up in its wake. Forced to withdraw, these firms changed into financial institutions and restricted the types of risky assets such as mortgage-driven securities they could invest in.

Investment banks currently face stiff competition when it comes to handling deposits and payments for corporate customers, handling trillions of dollars every year. But investment banks have one advantage over rivals: They have access to the Federal Reserve’s temporary lending facility and, when becoming full commercial banks, their balance sheets will be subject to close regulatory oversight.

Goldman Sachs Consumer Products division will bring 25-50 jobs to Wilmington by opening a temporary office along the Riverfront. While details haven’t been announced regarding what new consumer offerings they will create, existing offerings include online savings accounts with no minimum deposits as well as fixed rate personal loan products from Marcus Bank and Apple Card that offer personal loans at fixed interest rates.

It’s a Consultant

Goldman Sachs has long been associated with Wall Street titan banks; however, recently they have ventured into consumer credit and lending markets through products like their Marcus product offering fixed rate personal loans up to $30,000 and Apple Card issued in partnership with tech giant Apple. Of the 25-50 jobs moving to Delaware this summer from Goldman Sachs’ consumer business division some will focus on that area; Chantal Garcia, Chief Operating Officer for Consumer Business expressed that ambition.

Goldman Sachs has yet to announce what their future products might look like, though they likely won’t include traditional bank or savings accounts. Instead, company officials have been pitching products that utilize internet and smartphone technologies in order to give customers more control of their finances.

Bank of America has already expanded its online presence by enabling consumers to move money between accounts, send payments to other accounts or use an app to deposit. They have also introduced two products, an interest-bearing savings account with low rates of return as well as CD-style accounts offering longer terms and higher interest.

Goldman Sachs has gained strength beyond retail products by expanding its market presence for corporate and municipal bonds. BCG Expand, the research arm of Boston Consulting Group, reported that Goldman is one of the three top underwriters for such securities this year; their equities trading division alone expected to earn them about $11.1 billion, an increase of almost 50% year over year.

Consumer finance growth has hurt overall earnings for Goldman, which released second-quarter results on Tuesday. Revenue from trading desks fell 17 percent while income from its fixed-income, currency and commodity business fell more than 50 percent year over year – prompting Goldman to reduce its full-year profit forecast and warn investors about slowing economic growth risks. Although hit hard by recent stock sell-offs and stagnant U.S. economies, they have made significant strides forward with their stock trading business over recent years.

It’s a Trader

Goldman Sachs dominates its stock trading business, but the investment bank is working to increase market share in other areas as well.

Major steps have been undertaken to integrate and standardize services that companies using trillions of dollars in transactions use today into a single, integrated platform that would reduce costs, save time, and provide greater insight into cash levels.

That includes a new digital platform that enables customers to pay using cards, wire transfers and Automated Clearing House transfers. Using algorithms, this platform determines which method of payment would best fit each transaction and could help companies maximize card rewards while cutting paperwork costs.

American Express built this system, which boasts more than 30 million corporate customers and is the largest issuer of business charge cards, in partnership. Businesses using this service can send invoices through email to clients before paying them with virtual cards similar to credit or debit cards for payments – helping keep tabs on spending habits as they manage accounts more easily.

As part of an effort to expand their client base, the firm is hiring more employees and increasing its presence in areas like asset management and consumer banking. Furthermore, revenue could potentially increase by venturing into businesses it had not traditionally dealt with such as fixed income trading, currency or commodity trading.

Solomon led numerous reforms at Goldman Sachs designed to promote employee wellbeing, including shortening work hours and implementing smart casual dress codes. According to him, an informal culture would draw in fresh talent while making Goldman Sachs a place where employees “had lives outside of work”.

Some have raised concerns that Goldman is shifting toward personalized service, prompting some to question its position as a financial powerhouse. Furthermore, government regulators have increasingly scrutinized it over recent years. Recently, it announced its plan to become a bank holding company similar to what existed prior to Congress passing laws during the Great Depression that separated investment banks and commercial banks into separate entities – this means stricter rules such as higher capital reserves and less risk-taking will apply.