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Goldman Near Selling GM Credit Card Business: Will It Benefit GS?
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The Goldman Sachs Group, Inc. (GS - Free Report) is set to finalize an agreement to transfer its General Motors (GM - Free Report) credit card business to Barclays (BCS - Free Report) . The companies are still in the final stages of negotiation.
In November 2023, Goldman announced plans to discontinue its co-branded credit cards with GM. The credit card program, provided by Mastercard through Goldman, was created in 2022 to allow consumers to earn additional points toward purchasing or leasing Buicks, Cadillac and other General Motors vehicles.
Rationale Behind GS’ Exit from GM Credit Card Business
Goldman’s decision to quit the commercial agreement with GM, which had approximately $2 billion in outstanding balances, is part of the firm's strategy to restrict its focus on strength of investment banking (IB) and trading operations.
Goldman Sachs' shift away from consumer banking has continued since 2022. In first-quarter 2024, the company completed the sale of GreenSky, its home-improvement lending platform, to a consortium of investors. In the fourth quarter of 2023, it sold its Personal Financial Management unit to Creative Planning. Goldman aims to cease unsecured loan offerings to consumers through its digital consumer banking platform — Marcus. In 2023, it sold substantially all of Marcus’s loan portfolio.
With these initiatives, the corporation has taken steps to sharpen its focus on investments, banking and other market-related activities.
GS’ Q3 Revenues to Take a Hit
With its latest move, Goldman is expected to take a hit on the business in third-quarter 2024.
At the Barclays conference, GS’ CEO, David Solomon stated that by unloading Goldman's GM Card business and a separate portfolio of loans, the bank would post a hit to third-quarter revenues. "The combination of those things this quarter will likely have an approximately $400 million pre-tax impact, largely showing up in revenues," he added.
Final Thoughts on GS’ GM Credit Card Business Exit
Goldman Sachs' exit from the GM credit card business signals a positive shift in the company’s priorities to refocus on its Wall Street operations. Though its efforts to exit the consumer business and focus on IB and trading operations are expected to impact performance in the third quarter, the same is likely to generate a return over the long term.
The company’s focus on its Wall Street operations is already paying off. In 2022 and 2023, its IB revenues declined 47.9% and 15.5%, respectively, while in the first half of 2024, the metric soared nearly 27% from the first half of 2023. The upside was driven by the bounce back in global mergers and acquisitions (M&As), which led to a remarkable improvement in the industry-wide deal value and volume.
At the Barclays conference, Solomon stated that IB business continues to improve, even though activity from financial sponsors has not rebounded as much as expected. He stated that the firm is hopeful that private equity-led deals will bounce back at the end of this year and in 2025.
In the past six months, GS has gained 21.8% compared with the industry’s growth of 8.4%.
Image: Bigstock
Goldman Near Selling GM Credit Card Business: Will It Benefit GS?
The Goldman Sachs Group, Inc. (GS - Free Report) is set to finalize an agreement to transfer its General Motors (GM - Free Report) credit card business to Barclays (BCS - Free Report) . The companies are still in the final stages of negotiation.
In November 2023, Goldman announced plans to discontinue its co-branded credit cards with GM. The credit card program, provided by Mastercard through Goldman, was created in 2022 to allow consumers to earn additional points toward purchasing or leasing Buicks, Cadillac and other General Motors vehicles.
Rationale Behind GS’ Exit from GM Credit Card Business
Goldman’s decision to quit the commercial agreement with GM, which had approximately $2 billion in outstanding balances, is part of the firm's strategy to restrict its focus on strength of investment banking (IB) and trading operations.
Goldman Sachs' shift away from consumer banking has continued since 2022. In first-quarter 2024, the company completed the sale of GreenSky, its home-improvement lending platform, to a consortium of investors. In the fourth quarter of 2023, it sold its Personal Financial Management unit to Creative Planning. Goldman aims to cease unsecured loan offerings to consumers through its digital consumer banking platform — Marcus. In 2023, it sold substantially all of Marcus’s loan portfolio.
With these initiatives, the corporation has taken steps to sharpen its focus on investments, banking and other market-related activities.
GS’ Q3 Revenues to Take a Hit
With its latest move, Goldman is expected to take a hit on the business in third-quarter 2024.
At the Barclays conference, GS’ CEO, David Solomon stated that by unloading Goldman's GM Card business and a separate portfolio of loans, the bank would post a hit to third-quarter revenues. "The combination of those things this quarter will likely have an approximately $400 million pre-tax impact, largely showing up in revenues," he added.
Final Thoughts on GS’ GM Credit Card Business Exit
Goldman Sachs' exit from the GM credit card business signals a positive shift in the company’s priorities to refocus on its Wall Street operations. Though its efforts to exit the consumer business and focus on IB and trading operations are expected to impact performance in the third quarter, the same is likely to generate a return over the long term.
The company’s focus on its Wall Street operations is already paying off. In 2022 and 2023, its IB revenues declined 47.9% and 15.5%, respectively, while in the first half of 2024, the metric soared nearly 27% from the first half of 2023. The upside was driven by the bounce back in global mergers and acquisitions (M&As), which led to a remarkable improvement in the industry-wide deal value and volume.
At the Barclays conference, Solomon stated that IB business continues to improve, even though activity from financial sponsors has not rebounded as much as expected. He stated that the firm is hopeful that private equity-led deals will bounce back at the end of this year and in 2025.
In the past six months, GS has gained 21.8% compared with the industry’s growth of 8.4%.
Currently, GS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.