Goldman Misses Out on Lending Bonanza

But what Goldman didn’t have—which its retail banking peers such as JPMorgan Chase did in spades—was the significant tailwind of surging net interest income and lending growth that comes with rising rates and normalizing consumer borrowing activity.

This helps explain some of the divergence in stock performance among banks so far this season: Shares of major lenders with big lending books to match against their deposit bases are mostly up a lot so far, while banks that rely more heavily on fees and institutional cash aren’t. Even shares of , one of the class of regional lenders investors were generally most concerned about, were up nearly 8% on Monday. By contrast, Goldman shares fell about 2% on Tuesday after its report.

Where Goldman is lending to individuals, it saw a bump: The firm reported a 27% year-over-year jump in net interest income derived from its asset and wealth management business, which includes loans to private banking clients, plus from its platform solutions unit, which includes credit card loans such as via the Apple Card.

However, as part of the narrowing of its consumer focus strategy laid out in recent months by Chief Executive David Solomon, Goldman is intentionally shrinking some of this lending. It sold off some Marcus personal loans and plans to continue to do so. That added noise to its results, as the reclassification of Marcus loans into held-for-sale necessitated marking down their value, which was reflected in lower revenue. This was partly offset by a release of loan reserves, which bumped up net income. Goldman also announced that it is now exploring a sale of its GreenSky consumer lending unit.

This all highlights the ongoing question around Goldman, which is how it can continue to diversify its revenue away from its markets-driven businesses to take some volatility out of its results.

There was progress on these fronts. In its asset and wealth management unit, Goldman reported another record in fees, at $2.3 billion. Inflows into money-market funds also helped drive assets-under-supervision to another record of $2.7 trillion. It also continued to add significantly to its collateralized lending, which is part of the strategy of growing financing in its global banking and markets unit.

Goldman is adding to its deposit franchise with the announcement of Apple’s high-yield savings account for Apple Card customers; that cash will live at Goldman. With a yield of 4.15%, that may help it attract cash that is now aggressively seeking yield. The question is what they are going to do with this money to maximize its potential value to Goldman, if not lend it out to consumers.

There will certainly be quarters when Goldman’s current mix of businesses give it the means to outperform peers, such as if rates start falling and if Wall Street deal making rebounds. Its strategy to outperform in quarters like this one, though, is still a work in progress.

Write to Telis Demos at [email protected]