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Goldman Eyes New Lending Strategy Amid Revenue Pressure

The Goldman Sachs Group, Inc. GS seems to be seeking revenue opportunities as weak markets and stricter regulations have put a pressure on the investment bank’s traditional businesses like fixed income trading.  According to a Reuters report, Goldman, which is widely focused on large companies and wealthy clients, is now eyeing less wealthy borrowers.

Citing unidentified sources, the report stated that per the New York based bank’s new strategy, it will to partner with small brokerages and wealth management firms for lending money to their clients. Notably, many of these clients have much less wealth, in sharp contrast with a usual Goldman private bank account. While the wealth threshold for the prospective borrowers could not be known, they are presumed to be "mass affluent" i.e. those having investable assets below $1 million.

The strategy, which is in an early stage, calls for an increase in lending activities through third-parties as Goldman currently does not intend to acquire any large brokerage firm or depository bank. With this potential strategy likely to be implemented next year, Goldman intends to have a larger borrower base in the U.S. and may extend abroad as well, without resorting to mergers or building relationships individually.

Notably, loans will further extend Goldman’s offerings to outside investment managers through which the company sells its own products including mutual funds and alternative investments.  Nonetheless, the new strategy seems unique in Wall Street, as usually most banks lend to their own clients.

However, the company is exposed to associated risk. This is because it will be difficult for Goldman to evaluate borrowers or their collateral assets.

The company also intends to boost margin lending that facilitates clients to borrow loan against a percentage of their assets.  

The latest plans of Goldman do not come as a surprise. The company has been taking steps to boost its business. Last month, complementing its funding capabilities, Goldman completed the acquisition of the online deposit platform of GE Capital Bank, assuming around $16 billion of deposits.  Further, the company plans to commence online consumer lending later this year.

Goldman currently carries a Zacks Rank #5 (Sell). Some better ranked stocks in the finance space include Raymond James Financial, Inc. RJF, Flagstar Bancorp Inc. FBC and Cash America International, Inc. CSH. All three stocks sport a Zacks Rank #1 (Strong Buy).

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GOLDMAN SACHS (GS): Free Stock Analysis Report
 
RAYMOND JAS FIN (RJF): Free Stock Analysis Report
 
FLAGSTAR BANCP (FBC): Free Stock Analysis Report
 
CASH AM INTL (CSH): Free Stock Analysis Report
 
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