According to the news report by Bloomberg, Goldman Sachs Group Inc. is planning to control the rapid expansion of its online lending platform, Marcus. This is because of the company becoming more cautious about doing business in the consumer debt market, which is a key area of growth on this platform.
According to internal sources that spoke to Bloomberg, Goldman’s Marcus division is cutting its loan-originations targets for 2019. These internal sources requested to remain anonymous as this information is still private. However, they said that this revision in targets is reflective of the company’s concern about the stage of the credit cycle as well as the changes that were being seen in market data.
The new Chief Executive Officer of Goldman Sachs, David Solomon, as well as other leaders in the bank, have been focusing on Marcus as one of the pillars that would help the company boost its revenues over the next few years.
The Marcus division has grown rapidly over the last two years, lending over $4 billion in that time. This has raised questions from analysts as well as investors about how the division would perform if the markets took a downturn when consumers would struggle to pay off their debts.
Traditionally, Goldman Sachs has focused on large corporations and investors using its trading businesses and investment bank. The Marcus unit is a massive departure from the bank’s usual strategy. In fact, many questioned the bank’s ability to enter the consumer space, especially more than a decade after the financial crisis and the subsequent economic recovery.
Goldman Sachs’ leaders have defended the bank’s entry into the consumer market, stated that the technology available today has turned unsecured personal loans into a mathematical problem that can be solved.
To this end, the bank hired Discover Financial Services’ Harit Talwar in 2015 to create and run a digital consumer business for Goldman Sachs. The unit was launched and in 2016, Marcus began making loans to consumers. This year, in 2018, the bank expanded to the UK.
Additionally, the bank created a separate division for its lending services. This new unit was handed to Stephen Scherr to manage, who, just last month, had been named the bank’s new Chief Financial Officer.
Solomon had stated in May that Marcus was expected to become “very big [and] very profitable” and had compared the unit to Goldman Sachs’s investment management division three decades ago.
According to the sources, the bank’s decision to cut down on its targets for Marcus are based on current market conditions related to consumer lending. However, this decision could change in the future.
This is because while unemployment rates in the US are the lowest they have been in almost 50 years, there are concerns among some lenders that there are chances of possible losses in consumer credit if interest rates rise once more.
Another warning that indicated trouble was the household debt metric. According to the data released by the Federal Reserve Bank of New York, the total household debt in the US hit record highs earlier this year.
Data from the credit bureau TransUnion shows that personal loans are the fastest growing consumer lending category in America, with outstanding balances at $125 billion. A large part of this growth is coming from fintech companies, making up over one third of all person loans taken in 2017. In contrast, personal loans from the fintech sector barely made up 1% of the total loan in 2010.
Goldman Sachs’s shares fell by 0.4% on the back of this news, taking the total drop in share price for the year to 12%.