In 2019, Goldman Sachs made a splash by announcing what it called a “game-changing” credit card with AppleFive years later, the alliance appears to have failed and Apple is reportedly looking for a new card partner. If this goes ahead, Goldman will be left footing a hefty bill and the bank will have to completely eliminate one of its three business lines, according to a leading analyst.
To put Goldman's potential business pivot into context, it's helpful to go back almost a decade. That's when the firm, known for advising high-net-worth individuals and for its storied investment banking, decided to diversify. In 2016, it launched Marcus by Goldman Sachs, an online bank that Offered personal loans and savings accounts. Goldman later added credit cards to its consumer offering, including partnerships with Managing director and Apple.
This was the bank's attempt to target the so-called “mass rich.” However, Goldman was not very good at the end stage and its consumer business, as of August 2022, was still operating at a loss. Later that year, Goldman pulled out of consumer banking and reorganized.
Goldman's response was to combine asset and wealth management into one segment and put investment banking, global markets and trading into a second segment. (Goldman moved Marcus Invest and Marcus Deposits, which offers users high-yield savings accounts, into the asset and wealth management business.)
The bank's third unit, called platform solutions, housed transaction banking, Goldman's consumer partnerships (primarily credit cards with Apple and General Motors), as well as its specialist lender GreenSky. Stephanie Cohen, one of Goldman's most powerful women and former co-head of its consumer and wealth management business, was put in charge of platform solutions. Cohen resigned Goldman in March, while the bank that month finished the sale of Greensky to a consortium led by Sixth Street.
Goldman now appears to be abandoning its card partnerships. In November, the investment bank reached an agreement with GM to begin a process to find a new issuer for the card, a person familiar with the situation said. GS is currently expected transfer the GM card business to BarclaysAlso in November, Apple decided to end its credit card partnership with Goldman, according to the The Wall Street Journal. JPMorgan Chase is In talks with Apple to take over the technology company's credit card program, the WSJ newspaper reported this week.
If JPMorgan is successful, the sale would make strategic sense and would likely lead to Goldman phasing out platform solutions, according to a late-breaking note this week from Mike Mayo, managing director and head of U.S. large-cap bank research at Wells Fargo Securities. Closing the platform solutions would allow Goldman to fully focus on its two core businesses: GBM (global banking and markets) and AWM (asset and wealth management), Mayo said.
“For us, the sale reported in the WSJ newspaper “(Unconfirmed) Apple's GS Card portfolio ($17 billion) would be a strategic bright spot and help the company move 'into the future,'” Mayo said. The problem, however, is the exit cost, which, if it were to exceed $1 billion, would appear negative, he wrote.
Mayo noted that the sale would reflect another “purple blow” to Goldman’s failing consumer strategy, especially if the cost of the sale is too high. There are some silver linings. If the investment bank were to exit the Apple and GM card partnerships before the end of the year, it could remove the cards from the 2025 waiting list. federal stress testMayo said. “Overall, GS implies that cards are nearing breakeven, meaning a sale appears to be pending (to be discussed),” Mayo wrote in the note.
According to the WSJ, Apple has held talks with several potential buyers for the card business, including Financial synchronicity and Capital One, while its talks with JPMorgan began earlier this year and have made progress in recent weeks. JPMorgan, however, does not want to pay the full face value of the roughly $17 billion in outstanding balances on Apple’s credit card program, the article said.
Mayo said in the note that he has heard exit cost estimates ranging from about $500 million to $4 billion, with the analyst saying it would be at the low end of that range at a discount of between 3% and 10% to face value. “In our view, a payment from GS to JPM in excess of $1 billion could be viewed negatively if GS truly believes it is bringing the portfolio toward breakeven, and in the context of the premiums often associated with card portfolio sales,” Mayo said.
There won't be much left in platform solutions after the GM card is sold and Goldman gets rid of it. Seller Financing PortfolioTransaction banking is not a major item and could be moved to GBM, Mayo said. Last week, David Solomon, Goldman's chief executive, said the investment bank expects to take a $400 million hit from the transition of the GM card business and other small retail businesses.
News of Goldman's projected $400 million loss sent shares down 4%, but the stock has since recovered and is up nearly 4% to $503.48 in afternoon trading Thursday. JPM shares have fallen a bit from their 52-week high of $225.48, but are up nearly 2%, or $3.10, to $210.63.
Mayo has “overweight” ratings on both JPMorgan and Goldman. His price target for JPM is $225, while for Goldman it is $550.
This story originally appeared in Fortune.com
