Saturday, July 13, 2024
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Goldman Sachs is set to significantly expand its lending to ultra-wealthy private bank clients, aiming to double its loan portfolio over the next five years. This strategy focuses on clients with account sizes exceeding $10 million, leveraging the bank’s growing deposit base to supercharge lending, according to Nishi Somaiya, Goldman’s global head of private banking, lending, and deposits.

Goldman Sachs plans to make more loans to wealthy individuals and families for substantial purchases, such as luxury homes and sports teams, enhancing its wealth management operations.

The private bank’s outstanding loans stood at $33 billion in the first quarter, excluding other undisclosed commitments that could significantly add to this total.

“We were not really focused on lending to our private wealth clients,” CEO David Solomon told Reuters. “They have borrowing needs and we’re well-positioned to serve them competitively.”Goldman’s total deposits surged to $441 billion in the first quarter, with over 39% coming from consumer accounts. This rise provides a cheap funding source for the bank’s markets division and institutional businesses.

Goldman’s lending in wealth management as a percentage of its wealth client assets is 3%, significantly lower than the industry average of 9%, according to Autonomous Research.Bank of America’s total outstanding loans and leases to wealth management clients were around $220 billion at the end of its last financial year, similar to JPMorgan Chase’s figures.

 “There’s a real opportunity for us to grow in our private banking activities,” said Somaiya, noting the gap between Goldman and its peers.

Goldman aims to boost the return on equity (ROE) for its broader asset and wealth management division from the current 9.9% to a mid-teens percentage in the medium term.

Goldman Sachs Asset Management intends to more than double its private credit portfolio to $300 billion within five years, using external investor funds rather than the bank’s own balance sheet.

Goldman offers various lending options, including leverage against illiquid assets like alternative investments or art, margin loans against securities, and funding for acquisitions.

“We are creating liquidity for a rainy day,” said Somaiya, emphasizing that these services help deepen client relationships and create steady revenue streams.

This expansion marks a strategic move for Goldman Sachs, broadening its business beyond trading and investment banking and positioning itself as a key player in the wealth management sector. Investors will be watching to see if this lending push translates into improved financial performance and stronger client relationships.


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