A Blog by Jonathan Low


Apr 27, 2016

Signs of the Apocalypse? Why Goldman Sachs Wants the Little Guy's Pin Money

There are technical reasons, based on new banking regulations, that impel previously haughty firms like Goldman to seek deposits from people who the investment bank would probably not otherwise allow to step into its building's front lobby to get out of the rain.

That - and offering higher rates than their competitors - aside, it is not apparent that the firm's newfound democratic impulses can or should erase the abundance of mistrust it has earned by its historic disdain for the interests of anyone, including clients, aside from those of its own partnership.  JL

Justin Baer and John Carney report in the Wall Street Journal:

What these actions are showing you is that the regulatory environment is very tough right now for a traditional investment bank.
Goldman Sachs, adviser to billionaires and the world’s largest companies, will now accept your couch-cushion money.
The financial firm most synonymous with Wall Street started offering savings accounts and certificates of deposit this month from the website of its banking arm, GS Bank. The firm will accept new customers with as little to save as $1, though they will need $500 to open a certificate of deposit.
Goldman Sachs manages more than $1 trillion in assets from the world's top investors and now offers banking for the 99%. WSJ's Justin Baer joins Lunch Break and discusses the launch of GS Bank, where Goldman offers savings accounts for as little as $1. Photo: AP
The move was set in motion last August, when Goldman signed a deal to buy the online-deposit platform of GE Capital Bank. The transaction’s closing this month started the new era for the nearly 150-year-old firm run by Chairman and Chief Executive Lloyd Blankfein.
Goldman Sachs’s sudden fondness of small accounts is mainly driven by recent bank regulations that look more kindly on retail deposits. The bank also is looking to make more loans. Its core investment-banking and trading businesses suffered a tough first quarter, reviving some concerns about its strategy.
With the move, the New York company isn’t offering full-service retail banking. For example, its savings accounts don’t come with checking features, ATMs or Goldman branches to accept cash.
The main selling point, in addition to Goldman’s cachet: high rates.​The bank is touting a 1.05% yield on savings accounts, 1% on one-year certificates of deposits and 2% on five-year CDs.
Those rates are low historically, but much higher than what most large banks are offering these days. Goldman’s five-year CD provides a yield of between four times and 13 times the amount offered by the four largest U.S. banks— J.P. Morgan Chase JPM 0.02 % & Co., Bank of America Corp. BAC -0.17 % , Wells Fargo WFC -0.12 % & Co. and Citigroup Inc. C -0.06 %  BAC -0.17 % The yield on Goldman savings accounts exceeds the ones offered by its peers by a factor of about 100.
Still, Goldman is moving into a sector with experienced rivals. Goldman’s rates are competitive with other nationally available offerings, including those of Discover Financial Services, DFS 0.05 % Ally Financial Inc. ALLY -3.06 % and Synchrony Financial, SYF -1.73 % said Greg McBride, chief financial analyst at Bankrate.com. Like many banks that don’t have to maintain branch networks and the costs they entail, Goldman is able to offer higher yields than the biggest banks do, Mr. McBride said.
GE Capital, a unit of General Electric Co. GE 0.00 % , pitched identical rates on the savings accounts and CDs for its roughly $16 billion in deposits. Goldman chose to keep offering the same rates and used a similar look and feel for its website to help ease the transition for those existing depositors. The firm also inherited a call center in Cedar Rapids, Iowa, with about 100 employees to field requests and questions about the savings products.
The GE deal was part of a broader strategy by Goldman to collect more low-cost deposits it can then lend out to clients across each of its businesses, from investment banking to wealth management. Goldman’s GS Bank held about $88 billion in deposits as of Dec. 31, according to a regulatory filing. Much of that came from well-heeled clients in the firm’s wealth-management division, in which the average account has about $50 million.
The firm has pushed to increase deposits because of the strategy’s regulatory advantages. Regulators have urged banks to become less dependent on short-term loans from other financial firms. Typically, big banks have used these funds to back bets, but the money quickly dried up during the 2008 financial crisis, exacerbating the market turmoil at the time. Deposits from consumers offer a steady and low-cost source of funding.
In 2009, GS Bank had just $32.9 billion in deposits. In February, Mr. Blankfein said the firm has looked to build its deposit base as it spots places to put that money to work in profitable loans. “We don’t go out and max out on deposits,” Mr. Blankfein said. “We source good investment or good lending opportunities and then get the funding.”
At its current size, Goldman’s deposit base is much smaller than those at Bank of America, J.P. Morgan and Wells Fargo. Those banks each had more than $1 trillion in deposits at the end of the first quarter. Morgan Stanley, MS 0.66 % Goldman’s closest rival, also has increased deposits to $157.6 billion as of March 31, up 16% from March 2015.
Goldman’s deposit efforts are overseen by Esta Stecher, a Goldman veteran who once helped oversee the firm’s legal team and who has run GS Bank since 2011. The firm also is pushing an online-lending project, dubbed “Mosaic” internally, to launch in the third quarter, people familiar with the matter said.
The lending unit, led by former Discover Financial Services executive Harit Talwar, plans to offer unsecured loans to individuals and small businesses, eschewing mortgages, auto loans and student loans, the people said. The business has hired about 90 people since Mr. Talwar came to the firm last year, they said.
While launching consumer businesses could bring new challenges and scrutiny to Goldman, regulators of late prefer consumer-finance activities to those tied to the capital markets, said Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods. “What these actions are showing you,” he said, “is that the regulatory environment is very tough right now for a traditional investment bank.”
By John Carney Goldman Sachs wants your money. It may have to work out a few bugs to get it.
The iconic Wall Street investment bank has opened an online bank offering savings accounts and certificates of deposits to almost anyone. For the savings account, all you need is a dollar and the dream of banking with a big firm.
Actually, that isn’t quite all you require. You already must have an external bank account. You will need it if you want access to your money, because Goldman doesn’t offer ATM access, checks, online-bill payments or common features of online banks.
The only way to get money out of a Goldman account is to initiate an electronic transfer to another financial institution or a wire transfer that can take up to one to three days. You are strictly limited to six withdrawals per billing cycle.In other words, a savings account at Goldman Sachs Group Inc. GS 0.38 % is an old-fashioned thing. It is just a place where you deposit money that you intend to save and don’t plan on withdrawing frequently or quickly.
Goldman’s website is easy enough to use, until it isn’t.
I ran through the sign-up process in just seven minutes, providing my home address, Social Security number and birth date. I created a username, password, an additional “secret word” and a hint to that. I agreed to a bunch of legal disclaimers.
Then it all came to a stop.
“We are very sorry but an error has occurred. An error has occurred while processing your request. Please call us toll free,” the screen said.
So, I filled out the form a second time. And got the same error at the same place. So I called the number provided, and the error code, which the screen told me was “error code 0,” itself seemed to be an error.
The experience that followed was very much a throwback
to the worst days of bank customer service. I was put on hold for over 20 minutes, something that hasn’t happened to me in dealing with a bank in over a decade. The very polite, very apologetic woman on the other end of the line told me that she couldn’t help me at all. The best I could hope for was to try again on the website.
So I tried once more, and the website put me into the error zone again. Despairing of calling the help line a second time, I simply closed down my browser window.
A Goldman representative offered to investigate the problem and have its help center call me to fix it.
For all this inconvenience, customers get paid more than most rivals.
Goldman’s savings account pays an annual interest rate of 1.05%. According to the consumer-banking site nerdwallet.com, it is second only to SFGI Direct, the online arm of West Virginia’s Summit Community Bank, which offers a 1.06% rate but requires a $500 minimum deposit.
That is far higher than what is on offer from America’s biggest banks. J.P. Morgan Chase JPM -0.03 % & Co., Bank of America Corp. BAC -0.20 % and Citigroup Inc. C -0.11 % have basic savings account that pay just 0.01%.
Why is Goldman so hungry for retail deposits that it is paying an interest rate 100 times than the biggest banks? The most likely explanation is financial regulation.
New regulations heavily penalize banks that rely on wholesale funding, money borrowed from other banks and large cash holders. Small retail deposits are favored by the rules. And Goldman, unlike big banks with established retail networks, has little of these.


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