Upscale Goldman, Moving Downstream?

In its search for a boost to its return on equity, Goldman Sachs may be bringing its brand to the masses.

Reuters reported Monday that the giant bank, known for its super-wealthy clients and inside track to the highest echelons of power in finance and government, may look to link up with smaller brokerages and smaller wealth management outfits in an effort to lend money to their clients.

These clients (should they indeed be targeted) are no slouches compared to the average U.S. (and possibly outside the U.S.) citizen, with investable assets of up to $1 million. But they pale beside the $50 million average account size of a Goldman private banking account.

The plan, which is still nascent, would look to put to work some of the billions of dollars Goldman has on its balance sheet, and which has swelled by $17 billion in online deposits that it garnered from GE Capital Bank.  The money has to be out in the field, goes the mindset, given the slowdown that has hit trading and investment returns at Goldman and other banks.  Parceling out money to smaller players, noted Reuters, means that Goldman does not have to go out and prospect, having a ready and tailor-made audience through the networks and client bases established by the smaller firms with whom Goldman would ostensibly partner.

True, the plan, should it materialize at all, would not debut until next year.  But it offers a glimpse of the way a brand can work beyond Wall Street.  The details thus far are hush-hush, with unnamed sources offering just about nothing in terms of tidbits on the fees that might be charged, or how collateral would work.  One would think, however, that the easiest route would be to tap into the network of investors who already have mutual funds or alternative investments with the firm’s imprimatur.  Straight out loans would be a horse of a different breed.  Would they be geared for, perhaps, personal loans collateralized by other accounts (possibly even linked to other wealth management firm investment accounts)?  Secured loans, if someone were launching a business venture?  Willingness to lend on margin is not yet an eyebrow-raiser but could be in the case of extreme market volatility and could churn results (not to mention accounts themselves).

If so, this type of initiative would dovetail nicely with the digital banking efforts detailed just last month, where Goldman said it would offer, exclusively, online banking for a savings rate that comes in, at present, at 1.05 percent, nicely above the roughly flat rate seen elsewhere in the U.S.  That push, of course, comes courtesy of the GE Capital deal, and might serve to help hedge against market volatility (the binary statement is that investors fleeing stocks might want to park cash somewhere).

In an age where ROE is 6.4 percent, and there have been four straight quarters of declines for the storied finance titan’s bottom line, the moves seem to be a nod to the fact that active capital in the field, and a bit of a wider net, may catch more investment guppies than whales, but quantity is beginning to matter too, as size once did.