The high-rolling investment bank courts small depositors
Apr 30th 2016 | NEW YORK
TO THE extent that Goldman Sachs has anything to do with the little guy, it is
usually accused of trampling over him in pursuit of profit. As an investment
bank, Goldman had not sought out deposits and the onerous regulation that comes
with them. In recent years it has declined even to manage assets for clients
with less than $10m, in the hope of escaping rules regarding unsophisticated
investors . Yet all that changed in mid-April, when it completed its purchase
of GE s internet-banking subsidiary. That brought it $16 billion in retail
deposits. It is now soliciting more, offering generous interest (by today s
miserly standards) on balances of as little as $1.
Admittedly, Goldman already held $88 billion in deposits. But those were either
the cash holdings of the millionaire customers of its wealth-management arm, or
accounts steered to it in wholesale batches via middlemen. Online deposits at
GS Bank, as the internet bank is known, earn annual interest of 1.05%. That is
only a bit less than the 1.11% offered by Dime Savings Bank of Williamsburgh, a
tiny New York bank that is America s most generous deposit-taker according to
Bankrate.com, a comparison website. But it is considerably more than the 0.75%
paid by Capital One, America s biggest online bank. It is more than double the
0.49% Goldman pays on its existing deposits. And it is many times the rates big
banks pay on conventional savings or current accounts.
Compared with borrowing on the bond market, however, it is cheap. Goldman has
$175 billion in long-term debt, with an average annual interest rate of 4.6%,
according to Morningstar, a research firm. The two are not strictly comparable:
deposits involve higher administrative costs and payments to America s
deposit-insurance fund. They can also be withdrawn at will, whereas Goldman s
debt has an average duration of seven years.
In practice, ordinary savers seldom withdraw their money in a panic, since
deposits of $250,000 or less are insured. That is in stark contrast to
short-term investors in the bond markets, who sometimes rush to sell at the
first whisper of trouble, leaving banks less able to borrow. At any rate,
regulators are encouraging banks to seek deposits under various new rules
designed to ensure that banks do not suffer liquidity crises.
Goldman has not said what it will do with the money GS Bank attracts. Some
speculate that they will be used to fund Mosaic, its embryonic online-lending
business, which plans to dish out modest sums to individuals and small
businesses. The idea of Goldman as a savings bank and lender to the masses may
seem somewhat incongruous, but GS Bank and Mosaic are not its first forays into
the finances of the 99%. In March it bought Honest Dollar, an online provider
of retirement accounts through which companies help their employees to save. It
charges low and transparent fees to make investments in inexpensive
exchange-traded funds. For years Goldman has courted only those at the top of
the heap. Now, apparently, it sees opportunity at the bottom.