Daily Management Review

Goldman's new role of retailer


05/05/2016


Just recently, Goldman Sachs has been accused of ignoring, and sometimes a frankly scornful attitude to ordinary citizens. One of the world's largest investment banks was not eager to attract retail deposits, since it would have to comply with burdensome regulation then.



Spoon Monkey via flickr
Spoon Monkey via flickr
In recent years, the bank even refused to manage customer assets less than $ 10 million, not wanting to deal with "unsophisticated investors". However, this all changed in mid-April, when Goldman completed the purchase of an online bank General Electric (GE), which houses retail deposits worth $ 16 billion in total.

Now, Goldman is looking for new investors by offering extremely generous interest rates (compared to today's meager standards), even for accounts with a balance of $ 1.

It should be noted that even before the April deal, Goldman had $ 88 billion in the deposits. Those, however, were cash savings of customers from the wealth management division, or corporate accounts (typically large multinational corporations).

GS Bank’s online deposits (the new online bank’s name) receive an annual interest rate of 1.05%. This is slightly less than the 1.1% offered by Dime Savings Bank of Williamsburgh (small bank in New York). Note that, according to the rating Bankrate.com, Dime savings has the best conditions for investors in the United States.

At that, GS Bank rate is significantly higher than 0.75% paid by Capital One, the largest American online banking institution. Moreover, it is almost two times more than 0.49%, which Goldman pays now to its old clients.

Of course, 1.05% is a small figure compared to borrowing in the market debt instruments. Goldman has long-term debt in the amount of $ 175 billion with an average interest rate of 4.6%, according to research firm Morningstar. 

These two options, of course, are hardly comparable: deposits of individuals have higher administrative expenses, and must be compensated in the federal deposit insurance fund. In addition, investors can withdraw their money any time, while the average duration of Goldman’s debt instruments - seven years.

In reality, ordinary savers rarely take off with the money in panic, since deposits of $ 250 thousand and less insured. This, however, is different for short-term debt market investors, who begin to feverishly sell at the slightest hint of a problem. In any case, regulators encourage banks to attract deposits under the new rules, which should help financial institutions avoid a liquidity crisis.

Goldman has not yet announced what will be done with money brought by GS Bank. Some analysts believe that the funds will be used to finance Mosaic (new Goldman online lender), which will give small loans to individuals and small businesses.

The very fact that Goldman would become a bank for ordinary citizens seems to be something incredible. Yet, GS Bank and Mosaic are not the bank’s first try to enter the financial retail services market. In March, Goldman bought Honest Dollar, works with online pension accounts of physical persons.

source: economist.com






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