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Investment giant Goldman Sachs Group Inc (NYSE:GS), long known for serving just corporate customers and only the richest of the rich in its private wealth management unit, is heading to the opposite end of the investment spectrum with the launch this week of its online bank GSBank.com.
GSBank is geared totally to the Retail investor, something brand new from Goldman Sachs.
Its minimum deposit is just $1.
It is offering a very basic lineup of investment products to retail investors, such as Online Savings and Certificates of Deposit.
Why is Goldman Sachs getting into Retail Banking? And will this lead Goldman to expand to Retail Trading as well?
Like most things Goldman Sachs has done lately, it is complicated. And, it is tied to regulatory changes.
Goldman Sachs and several other of the big Wall Street firms (such as Morgan Stanley) were forced by US regulators and the US Federal Reserve to apply to become bank holding companies during the 2008 financial crisis in order to gain access to the liquidity provided by the Fed’s discount window.
And recently, international bank regulations (known as Basel III) were changed favoring good old boring bank deposits from small investors over other funding sources such as deposits from large financial institutions, where Goldman currently gets much of its deposit money. The thinking there is that Retail savers are less likely to pull money out of their savings accounts during a financial crisis. Banks need to hold less regulatory capital backing Retail deposits, making them now a cheaper source of funding.
Goldman isn’t starting GSBank from a standing start. Goldman recently bought GE Capital’s online deposit business, bringing more than $16 billion of retail deposits to Goldman. GSBank is also to be staffed largely by ex GE Capital people, although the new bank’s CEO is longtime Goldman Sachs partner Esta Stecher.
For its part, Goldman says of the new GSBank.com:
We are committed to providing our new online deposit customers the high level of service they have come to expect. GS Bank will continue to offer smart, simple savings products backed by the skilled and knowledgeable team joining us from GE Capital Bank.
This transaction increases the funding diversification and strengthens the liquidity profile of Goldman Sachs and GS Bank. We are pleased to add the capability for accepting online deposits, a strategic priority for the firm and for GS Bank.
However most things Goldman Sachs does are well thought out and strategic beyond just regulatory reasons. Goldman clearly sees a future in providing services to Retail clients via an online platform.
Will Goldman expand its new offering beyond basic online Retail banking to include trading and other services?
Perhaps. Of all the world’s large global financial institutions, Goldman Sachs is probably the most familiar with the online retail trader. While most big banks have decided to stay out of the Retail Trading and Retail Forex sectors, Goldman has been involved in several companies, with mixed results. Goldman Sachs was a partner with Betfair in launching LMAX Exchange. Goldman later sold its stake to Betfair at a loss, and Betfair later basically wrote off the investment and handed control of LMAX Exchange to management, although the company has since turned the corner and has grown to be profitable.
Goldman was (and remains) the second largest shareholder in newly public CMC Markets Plc (LON:CMCX), one of the largest online trading brokers serving retail clients in the UK. Goldman’s 5% stake in CMC Markets is now worth more than $50 million.