Goldman Sachs sheds GreenSky lending platform but still faces lack of low-cost deposits, analyst says

By Steve Gelsi

Investment bank will book impact of 19 cents a share on third-quarter earnings as it narrows its consumer-banking focus

Goldman Sachs Group Inc. marked an end to a painful couple of years with the sale of its GreenSky consumer-lending unit to a private-equity consortium led by Sixth Street.

Goldman Sachs (GS) did not disclose the sale price of GreenSky, a service provider for consumer loans for healthcare and home improvement that it acquired for $1.7 billion in 2021.

Times have changed drastically since then, and shares of many financial-services companies have fallen sharply, dragging down deal prices for mergers and acquisitions of specialty consumer-lending and fintech companies in GreenSky's overall universe.

Upstart Holdings Inc.'s stock (UPST) was trading above $200 a share for most of 2021 and is now below $30. Block Inc.'s stock (SQ) is down 26% so far this year to around $47 a share, after trading well above $200 a share in 2021. Shares of Opendoor Technologies Inc. (OPEN) are up 131% this year, but that is still a fraction of their $20 price from thee years ago.

Christopher Marinac, an analyst at Janney Montgomery Scott, said that Goldman is "getting rid of a problem" with the sale of GreenSky, but that bank still faces the challenge of building up a large pool of low-cost deposits for any lending activities.

"There's not much there in the way of core deposits from cheap sources," Mariniac said.

While Goldman runs a large wealth-management business, its well-heeled customers don't park their funds in classic savings accounts paying low interest, which is the case at other banks, he said.

Goldman Sachs disclosed a 4.2% interest-bearing-deposit cost in the second quarter, compared with 1.23% for Bank of America Corp. (BAC), 1.61% for JPMorgan Chase & Co. (JPM) and 1.13% for Wells Fargo & Co. (WFC), according to data compiled by Janney.

Goldman Sachs's stock fell 0.6% in regular trading on Wednesday. The stock is down 25.5% in 2023, compared with a 2% year-to-date increase by the Dow Jones Industrial Average DJIA. Goldman Sachs is a component of the 30-stock index.

Along with Sixth Street, buyers of GreenSky include KKR & Co. (KKR), Bayview Asset Management and CardWorks, which is a privately held consumer-finance lender and servicer based in Woodbury, N.Y.

As part of the deal, Pimco is providing support for an asset acquisition. CPP Investments has agreed to finance the deal, which is expected to close in early 2024.

Goldman Sachs said the sale of GreenSky will impact its third-quarter earnings by 19 cents a share, or about $62.6 million based on the number of outstanding shares of the investment bank.

Goldman is currently expected to earn $5.86 a share when it provides its quarterly update on Oct. 17.

The impact of 19 cents a share reflects an increase in operating expenses for the write-down of intangibles, as well as a drop in net revenue related to marks on GreenSky's loan portfolio and an increase in taxes, the bank said. This was largely offset by a release of loan reserves reflected in provision for credit losses, the bank said.

Goldman Chief Executive David Solomon said the deal "demonstrates our continued progress in narrowing the focus of our consumer business," according to a statement.

The investment bank acquired GreenSky at time when it was building out its Marcus consumer-banking unit. Early this year, however, Goldman made a U-turn on the effort and disclosed a $3 billion loss on its consumer business, as well as plans to divest GreenSky.

The bank also realigned its businesses into three main units: Global Banking & Markets, Asset & Wealth Management and Platform Solutions.

Criticism of Solomon started to build this year and spilled into media reports, including a Wall Street Journal article that said a war had broken out between partners at Goldman Sachs.

Also read: Goldman Sachs CEO David Solomon says he doesn't recognize 'caricature' that critics have painted of him

-Steve Gelsi

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10-11-23 1703ET

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