Goldman Sachs Faces Losses and Plans Exit from Consumer Lending
Goldman Sachs’ Partnership with Apple Results in Significant Losses
Goldman Sachs’ venture into consumer lending through its joint ventures with Apple has proven to be a costly endeavor, leading to dissatisfaction among its executives. At a recent town hall meeting, it was revealed that the bank has incurred a total loss of $3 billion from its consumer lending efforts, with $1 billion attributed to the unsuccessful Apple Card project.
Efforts to Divest from Consumer Lending
In addition to the losses stemming from the Apple partnership, Goldman Sachs has also suffered a $1.2 billion loss in 2022 due to high acquisition costs per new user. As a result, the bank is now actively seeking to divest from the consumer lending sector. This includes selling off most of its personal loans and its primary consumer lending business, GreenSky, at a loss.
Challenges in Ending the Troubled Apple Card Partnership
Despite negotiations with credit card company American Express, Goldman Sachs has faced difficulties in offloading its troubled Apple Card partnership. Concerns surrounding loss rates and MasterCard’s role as the network partner have stalled decision-making processes.
Issues with the Apple Card Billing Cycle
An identified issue with the Apple Card is its billing cycle, which generates all bills on the first day of each month. This has led to an increased workload in customer service efforts. Unfortunately, attempts to address and change this issue have been unsuccessful and have been attributed to Apple.
Concerns over Separating from Apple
Goldman Sachs executives are concerned about the large last-minute funding that may be required if the bank separates from Apple. The recently launched joint savings account with Apple has attracted high deposit balances within a few months, further complicating the separation process.
Consumer Financial Protection Bureau Investigation
Adding to Goldman’s challenges, the bank is currently under investigation by the Consumer Financial Protection Bureau for its failure to promptly address errors and refund cardholders. Goldman Sachs places blame on Apple for this issue.
Proposed Exit Strategy
Some within Goldman Sachs have suggested an exit strategy that involves Apple lending its own money for new credit card issuance while the bank continues to manage existing loans. However, this proposal has not gained traction within both corporations.
Focus on Improving Credit-Card Partnerships
During a recent earnings call, Goldman Sachs’ CEO acknowledged the need to improve credit-card partnerships. Liz Martin, head of Enterprise Partnerships at Goldman Sachs, expressed satisfaction with the Savings account and emphasized the bank’s commitment to providing valuable products to Apple Card customers.
Goldman Sachs and Apple’s Market Performance
According to InvestingPro Tips, Goldman Sachs is a prominent player in the Capital Markets industry and has maintained dividend payments for 25 consecutive years. The bank’s management has also been actively buying back shares. Despite the challenges faced with the Apple Card project, the bank’s revenue remains strong at $43.76 billion, with a gross profit margin of 83.02%. It also boasts a healthy dividend yield of 3.56%.
Apple, on the other hand, is a prominent player in the Technology Hardware, Storage & Peripherals industry. The company has consistently been profitable over the last twelve months and has raised its dividend for 11 consecutive years. Additionally, Apple’s management has been aggressively buying back shares, indicating confidence in the company’s future performance. With a market cap of $2780.0 billion and a P/E ratio of 29.72, Apple’s revenue stands at $383.93 billion, with a gross profit margin of 43.45%. The company also has a dividend yield of 0.54% and has seen a 1-month price total return of 2.19%.
This article provides unique insights into the challenges faced by Goldman Sachs in its consumer lending partnership with Apple. The bank’s losses and plans for divestment highlight the complexities of such ventures. Despite these setbacks, both Goldman Sachs and Apple remain strong players in their respective industries.
