Goldman Sachs Got Lax on Credit Cards. The Bill Is Coming Due.
The bank lent loosely on some credit cards, contributing to a big loss as it tries to sell the General Motors card business
Behind Goldman Sachs’ GS -3.55%decrease; red down pointing triangle messy departure from credit-card lending: lax underwriting standards.
The bank is facing mounting losses — including a roughly $400 million pre-tax hit disclosed Monday — as it tries to offload the remaining pieces of its Main Street lending business.
Goldman Chief Executive David Solomon said Monday the bank expects to incur the loss on the eventual sale of its General Motors GM -4.80%decrease; red down pointing triangle credit-card business and a smaller, unrelated business.
Goldman has been in talks for months with GM and Barclays about transferring the carmaker’s credit-card business to the British bank, The Wall Street Journal reported in April.
Barclays has been unwilling to pay the price Goldman originally expected, in large part because of high charge-off rates in the program, according to people familiar with the matter. Charge-off rates refer to the portion of the balances the issuer has to write off because borrowers are unlikely to pay them back.
People familiar with the talks say Goldman will likely receive less than the outstanding balances after having paid a premium to buy them.
The GM cards are largely targeted towards people who own and lease GM cars. Cardholders earn points they can put toward car payments or servicing, among other things. The partnership has roughly $2 billion in balances.
The problematic accounts were primarily originated by Goldman after it took over the program from Capital One and began opening new accounts in 2022. Average charge-offs on the Goldman-originated accounts, which make up roughly one-third of the GM portfolio, surpass 10%, the people said.
In contrast, the annualized credit-card charge-off rate for commercial banks in the U.S. was about 4.5% in the second quarter of the year, according to Federal Reserve data.
Goldman struggled to grow the number of GM credit-card accounts, partly because travel-rewards cards have been all the rage. To boost demand, it turned to third-party websites including Credit Karma to find new cardholders. But that attracted people with lower credit scores.
As Goldman’s top executives tout a more streamlined institution focused on investment banking, markets and asset and wealth management, its missteps in the consumer business continue to weigh on its earnings.
Goldman Sachs has lost more than $6 billion on a pre-tax basis since the beginning of 2020 through the second quarter of this year on a big chunk of its consumer-lending businesses, including its credit cards. Goldman also finalized a deal last year to sell specialty lender GreenSky at a steep loss.
The far more challenging deal to offload will be the Apple partnership, where credit-card balances total around $17 billion. Apple sent Goldman a proposal late last year to exit the contract within 12 to 15 months, the Journal reported, which called for an end to the credit-card partnership the companies launched in 2019 and the savings account they rolled out in 2023.
Goldman could be facing a bigger loss when it sells this credit-card program to a new issuer than what it’s now expecting to incur with the GM sale.