Daily Management Review

Newly Acquired GE Capital Bank’s Online branch to Help Goldman Sachs to Offer Personal & Business Loans


Newly Acquired GE Capital Bank’s Online branch to Help Goldman Sachs to Offer Personal & Business Loans
With the aim to achieving greater funding diversification and strengthening of its liquidity profile, Goldman Sachs Bank USA, a unit of Goldman Sachs, will buy out GE Capital Bank's on-line deposit platform.

This is the first time that the US based global bank is entering the on-line consumer banking business.
The acquisition would give Goldman Sachs approximately $8 billion in on-line deposit accounts and $8 billion in brokered certificates of deposit, for a total of $16 billion in deposits. No other financial assets would however be acquired by the bank from general Electric Capital through the acquisition other than cash associated with the deposit liabilities.

General Electric Capital Bank is a Utah state-chartered industrial bank owned by General Electric Capital. This move is being seen as part of the strategy of General Electric Co. to dismantle its financial services as announced by the company in April this year.

"This transaction achieves greater funding diversification and strengthens the liquidity profile of GS Bank by providing an additional deposit-gathering channel. The establishment of this channel represents the advancement of a key funding objective for the firm," Liz Beshel Robinson, Goldman Sachs treasurer said in in a press release.

The deal also entails the extension of employment offer to "substantially all of GECB's employees dedicated to supporting the on-line deposit platform," the press release said.

No physical assets are purchased in transactions as the platform is completely digital.  

Analysts said that the banking business of Goldman Sachs would be boosted through the acquisition.

The total deposits for the Goldman Sachs Bank USA were at $89.1 billion in U.S and International deposits at the end of June 2015 as compared to $83 billion in 2014.

The deal would help the brick and mortar branched bank get access to the huge market of on-line retail banking and would make it more like a universal bank, said analysts.

Moreover, the addition of the on-line platform would also mean a deviation from Goldman Sachs’ strategy to cater services to only the institutions and wealthy individuals as the 140,000 customers of the on-line bank does not have a minimum balance requirement for the savings accounts.

"The establishment of this channel represents the advancement of a key funding objective for the firm," Robinson added.

In a statement, GE Capital Chief Executive Keith Sherin said: “the sale further shrinks the footprint of its financial-services business and moves it closer to shedding the label of a ‘systemically important financial institution,’ which carries with it greater regulation”.

Starting Jan. 1, 2016, GE Capital will still have to comply with basic capital and liquidity rules which the company aid have already been met.

The acquisition of the GE Bank would be a step in the direction to offer personal and business loans on-line for Goldman Sachs even though the bank is still in the early stages of using its banking subsidiary to make such offers.

Shares of GE have increased about 2% this year through Thursday’s close, while shares in Goldman Sachs are up 2.1%.

Closing of the transaction is subject to approval by regulators.
 (Sources: www.wsj.com, www.cnbc.com & www.streetinsider.com) 

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