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Goldman's Dangerous New Growth Strategy

Summary

Goldman Sachs announced plans to begin offering loans to less affluent customers through third party channels like small brokerages and wealth management firms.

Goldman has seen revenue and earnings from traditional areas like bond trading continue to decline lately.

The company is rapidly ratcheting up its lending business in an attempt to replace this lost revenue.

Goldman has increased its lending threefold since the beginning of 2012.

This strategy moves Goldman far away from its traditional model of catering to the ultra-wealthy.

On the surface, it might seem like a questionable, maybe even potentially dangerous, strategy but once you get the chance to understand it a little better…yeah, it still seems like a questionable idea.

I'm talking about Goldman Sachs' (NYSE:GS) plan to aggressively expand its loan book by partnering with third-party brokerages and wealth management firms to offer loans to customers that are likely less affluent than it typically caters to. It's not that I think the strategy can't work or be successful but this feels more like the move of a company that has had trouble generating growth on its own lately and is now exploring less conventional means of finding it. My issue is that this strategy feels like the kind of stuff that was going on during the financial crisis.

With revenues from traditional big money makers like trading struggling to perform as...


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