Will Goldman Sachs Group Inc (NYSE: GS) Foray Into Consumer Lending Payoff?

January 15, 2018, 10:18 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Goldman Sachs Group Inc (NYSE: GS) recently announced that it would start offering home improvement loans to consumers with excellent credit scores under its Marcus line of products. The investment bank first launched the Marcus debt consolidation loans in late 2016 and has so far issued Marcus loans totaling about $2 billion.

Article Summary

Goldman Sachs recently launched its home improvement loans product.

This is a new venture for the company and should be approached cautiously.

The bank’s core business is performing quite well.

Here’s the trading report on GS.

The bank’s foray into consumer lending is a totally new experience given that the investment bank has largely steered clear of consumer lending in the 150 years of operations since its founding. While there is no doubt in the viability of the consumer lending business, I have a word of caution to the bank given that the previous financial crisis was caused by major banks making similar moves in the subprime mortgage industry.

Although I do not believe that the Marcus debt consolidation and home improvement loans being offered by Goldman Sachs are likely to lead the bank to a state of insolvency, I advocate for a lot of caution in offering such loans. The main reason why I am advocating for caution is because the Marcus loans are being offered as unsecured personal loans, which is very similar to the subprime mortgages offered to unqualified borrowers in the run up to the financial crisis.

Having issued a word of caution regarding Goldman Sachs consumer lending business, its core investment bank business is performing quite well given that the bank was chosen by Xiaomi to facilitate its IPO. Other banks selected to participate in what could be the biggest IPO of 2018 include Morgan Stanley (NYSE: MS) and Credit Suisse Group AG (ADR) (NYSE: CS).  

The investment bank is also likely to benefit significantly from an improved operating environment given that a number of its alumni are in powerful positions within the Trump administration. For example, its former President Gary Cohn heads the National Economic Council, while its former Chief Investment Officer Steve Mnuchin is the Treasury Secretary.

Therefore, it is evident that Goldman Sachs is well-positioned to maintain its positive performance in the near future. However, it is not enough to know that a stock is likely to head higher this year; as an investor or trader, it is important to time your entry and exit points accurately in order to minimize risk and maximize your profit potential.

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