As it accumulates more deposits to boost lending, Goldman Sachs intends to treble its lending over the next five years to ultra-wealthy private bank clients with account sizes surpassing $10 million, the bank's chief of private banking told Reuters.
Goldman's global head of private banking, loans, and deposits, Nishi Somaiya, revealed the intentions to Reuters. They had not been publicised before. As part of its plan to strengthen its wealth management business, the Wall Street behemoth wants to lend more money to rich people and families for large acquisitions, such as luxury mansions and sports teams.
Goldman refuses to provide an exact estimate of the total amount of money it lends to affluent customers, who usually have a net worth of at least $30 million.
In the first quarter, the private bank had $33 billion in outstanding loans. This does not account for other hidden agreements that can raise the sum.
CEO David Solomon told Reuters in an interview that "we weren't really focused on lending to our private wealth clients -- we did a little bit of it, but it wasn't a big focus." "They have borrowing needs and we're well positioned to serve them competitively."
One bright spot from Goldman's disastrous consumer business venture is the lending drive. Even though the move into retail banking was a complete failure and unpopular with investors and staff, it still resulted in a spike in deposits into consumer savings accounts.
Compared to $190 billion at the end of 2019, Goldman's total deposits surged to $441 billion in the first quarter, with almost 39% originating from consumer accounts.
The deposits have also been used to finance Goldman's markets section at a low cost.
By offering short-term loans to customers utilising their holdings, such as equities or real estate, as collateral, the division reported record growth in financing for trading and private equity clients in the first quarter.
"We have grown, and will continue to grow, lending across our institutional businesses," stated Somaiya in response to the bank's deposit growth.
According to a research by Autonomous Research, Goldman's lending in wealth management as a proportion of its wealth client assets is 3%, much less than the average of 9% among its rivals.
Similar to JPMorgan Chase, Bank of America had around $220 billion in outstanding loans and leases to wealth management customers at the conclusion of its most recent fiscal year.
With that gap, Somaiya stated, "there's a real opportunity for us to grow in our private banking activities."
In order to expand beyond trading and investment banking, Goldman Sachs has expanded its lending to asset managers, private equity companies, and rich people with assets valued at least $30 million.
"This is a way to increase their wallet share of a client who they already have a relationship with," said Ebrahim Poonawala, banking analyst at Bank of America.
"You deepen the client relationship, you create sticky revenue."
Investors will be keeping an eye on whether the bank's wealth lending increases the division's overall asset and wealth management return on equity (ROE).
In the medium run, Goldman wants to increase the unit's return on equity (ROE) from its current 9.9% to a mid-teens percentage.
Additionally, the bank's asset management section is lending more money by using investor funds rather than the bank's own balance sheet.
In five years, Goldman Sachs Asset Management aims to more than quadruple its private credit portfolio to $300 billion.
Lending is viewed as a calculated tactic to broaden Goldman's clientele—ultra-high net worth individuals who are rare borrowers with a wide range of lenders to choose from.
"We can provide them leverage often against illiquid assets, if they need lending for an acquisition - home, hobby, another company, sports team - or want to use a margin loan against securities to invest more," Somaiya said.
Wealthy customers, for example, may use wall-mounted artwork or other alternative asset holdings as security for the loans, she continued.
"We are creating liquidity for a rainy day," she stated.
(Source:www.business-standard.com)
Goldman's global head of private banking, loans, and deposits, Nishi Somaiya, revealed the intentions to Reuters. They had not been publicised before. As part of its plan to strengthen its wealth management business, the Wall Street behemoth wants to lend more money to rich people and families for large acquisitions, such as luxury mansions and sports teams.
Goldman refuses to provide an exact estimate of the total amount of money it lends to affluent customers, who usually have a net worth of at least $30 million.
In the first quarter, the private bank had $33 billion in outstanding loans. This does not account for other hidden agreements that can raise the sum.
CEO David Solomon told Reuters in an interview that "we weren't really focused on lending to our private wealth clients -- we did a little bit of it, but it wasn't a big focus." "They have borrowing needs and we're well positioned to serve them competitively."
One bright spot from Goldman's disastrous consumer business venture is the lending drive. Even though the move into retail banking was a complete failure and unpopular with investors and staff, it still resulted in a spike in deposits into consumer savings accounts.
Compared to $190 billion at the end of 2019, Goldman's total deposits surged to $441 billion in the first quarter, with almost 39% originating from consumer accounts.
The deposits have also been used to finance Goldman's markets section at a low cost.
By offering short-term loans to customers utilising their holdings, such as equities or real estate, as collateral, the division reported record growth in financing for trading and private equity clients in the first quarter.
"We have grown, and will continue to grow, lending across our institutional businesses," stated Somaiya in response to the bank's deposit growth.
According to a research by Autonomous Research, Goldman's lending in wealth management as a proportion of its wealth client assets is 3%, much less than the average of 9% among its rivals.
Similar to JPMorgan Chase, Bank of America had around $220 billion in outstanding loans and leases to wealth management customers at the conclusion of its most recent fiscal year.
With that gap, Somaiya stated, "there's a real opportunity for us to grow in our private banking activities."
In order to expand beyond trading and investment banking, Goldman Sachs has expanded its lending to asset managers, private equity companies, and rich people with assets valued at least $30 million.
"This is a way to increase their wallet share of a client who they already have a relationship with," said Ebrahim Poonawala, banking analyst at Bank of America.
"You deepen the client relationship, you create sticky revenue."
Investors will be keeping an eye on whether the bank's wealth lending increases the division's overall asset and wealth management return on equity (ROE).
In the medium run, Goldman wants to increase the unit's return on equity (ROE) from its current 9.9% to a mid-teens percentage.
Additionally, the bank's asset management section is lending more money by using investor funds rather than the bank's own balance sheet.
In five years, Goldman Sachs Asset Management aims to more than quadruple its private credit portfolio to $300 billion.
Lending is viewed as a calculated tactic to broaden Goldman's clientele—ultra-high net worth individuals who are rare borrowers with a wide range of lenders to choose from.
"We can provide them leverage often against illiquid assets, if they need lending for an acquisition - home, hobby, another company, sports team - or want to use a margin loan against securities to invest more," Somaiya said.
Wealthy customers, for example, may use wall-mounted artwork or other alternative asset holdings as security for the loans, she continued.
"We are creating liquidity for a rainy day," she stated.
(Source:www.business-standard.com)
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