Marcus by Goldman Sachs: the primrose path
Getting closer to consumers via a digital bank is a sensible step
Goldman Sachs has arrived on the UK high street, offering instant-access online savings accounts for as little as £1 down. The website offers a delightul view of London from Primrose Hill: soon there’ll be billboards at Waterloo and ads in tube carriages. The real question is “what took you so long?”
Just over a decade ago, Goldman converted from a securities firm to a bank holding company, so it could access emergency facilities at the Federal Reserve and avoid the wipeouts suffered by Bear Stearns or Merrill Lynch. That new status came with drawbacks: close supervision by national regulators and new capital requirements, among them. It was not until a gathering at the house of Goldman president Gary Cohn in the Hamptons in the summer of 2014 that bigwigs came alive to the opportunities.
By then, Goldman’s brand needed burnishing. It had paid a record fine to the Securities and Exchange Commission, chief executive Lloyd Blankfein had undergone grillings on Capitol Hill, and a hatchet job in the magazine Rolling Stone. Goldman had struck back by promoting women and small businesses. Getting closer to the consumer through a digital bank seemed a sensible next step.
The real imperative was — and remains — to bring down the cost of funding. If Goldman can reshuffle its cast of creditors, replacing institutional investors with simpler folk such as you and me, it could make huge savings over time.
That work has begun in the US and in the UK. Goldman is offering savers a top-of-the-market interest rate of 1.5 per cent for the first 12 months. That is still much less than the bank’s wholesale cost of funding. Goldman is paying a weighted average fixed coupon of 3.86 per cent on the roughly 2,500 bonds tracked by Bloomberg, for example. Meanwhile, rising base rates are squeezing the bank’s margins. Over the first six months Goldman’s interest expenses were up 55 per cent, climbing faster than the 53 per cent increase in interest income.
New chief executive David Solomon would be wise to continue what Mr Blankfein set in motion. Giant wholesale-funded securities firms died in the 2008 crisis; Fed-backed universal banks such as JPMorgan Chase and Citigroup are the models to aspire to. If you want to make plenty of money while enjoying state protections, retail banking makes it possible.