October 13, 2016

High Valuations and Tight Regulations Lead to New Lending Platforms

Excerpt:

Goldman Sachs Group Inc., which has long catered to large corporations and wealthy individuals, has now entered the online lending realm. The banking investment giant is launching its own de novo online consumer lending platform, "Marcus," to service borrowers of smaller loans.


The Wall Street banking powerhouse is looking to an underserved market to boost its loan portfolio.

Goldman Sachs Group Inc. joined the online lending world this past spring by starting a platform to afford consumers online borrowing options.

Going forth, the multinational investment banking firm will be entering the online lending realm, but not by purchasing an existing platform. Rather, it's starting de novo with its own new lending platform, named "Marcus by Goldman Sachs," after the company's founder Marcus Goldman.

Stephen Scherr, CEO of the company's banking operations, expects Goldman Sachs can offer more competitive loans compared to all the Silicon Valley startups that have popped up over the past few years and caused a big shake-up in the industry.

Goldman Sachs has been traditionally focused on serving large-asset companies, but is now channeling the online lending avenue for consumers in an effort to spike revenue and beef up its balance sheet, particularly after the economic crisis that was faced nearly a decade ago. The Wall Street investment bank acquired General Electric Co.'s online bank, and with the inclusion of its new online lending platform, Goldman Sachs is anticipating to add millions in deposits. Today, the company has already accumulated deposits totaling $123.7 billion.

The de novo "Marcus" online lending platform will allow consumers with good credit to apply for and borrow unsecured loans online for a few thousand dollars. Using deposits to fund loans will provide the Goldman Sachs platform with more flexibility as far as setting terms and fees are concerned, unlike online lending startups which have to continually attract interest from oputside investors.


Launching its own de novo lending platform will avail Goldman Sachs with more flexibility.

The online lending platform would certainly expand Goldman Sachs' loan portfolio, particularly after remaining a bank holding company since the financial crisis in 2008.

While bank officials have long maintained that Goldman Sachs would remain a bank for the wealthy, it has recently been rethinking its position, considering more stringent regulations placed on the banking industry. Deposits obtained from the new online lending platform will provide a steadier type of funding compared to other variations of traditional short-term debt. With closer scrutiny from industry regulators, other means to diversify loan portfolios are welcome.

Increasing income is definitely on the radar for Goldman Sachs, considering the fact that it has recently been earning meager profits from deposits. According to Federal Deposit Insurance data, Goldman Sachs realized a net interest margin of a mere 1.25 percent in Q2 2016, placing them in second-last position compared to other banks of similar asset size.

Partnering With a Loan Sale Advisory Team Amidst an Environment of High Valuations

Goldman's Marcus lending platform is still in its inception phase, so it remains to be seen how regulators will influence its evolution. Goldman is starting de novo as opposed to buying a platform as a result of high valuations. In such an environment of high valuations, partnering with an experienced loan sale advisory team may be a viable alternative to starting de novo, and Garnet Capital can certainly help with that.

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