Goldman Sachs is moving to loan money to the ultra high net worth and wealthy businesses by opening a private bank. The move is a sign of the difficult market place as the firm targets the wealthiest individuals across the globe and ramps up its lending to major corporations. The target lending amount is $100 billion, a $12 billion increase since the end of March.
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The announcement also signifies a change in strategy at the firm, whose aggressive style and activities have been reined in by the new regulatory environment. The new regulations have shaved revenues from Goldman’s previous sources of business.
Since Goldman is now a bank, it will focus on gathering deposits, which will serve as a buffer against the volatility of the financial markets. Some Goldman executives wanted to renounce the firm’s status as a bank holding company after the worst of the 2008 crisis was over but the Fed and lawmakers would not take such a renouncement well.
The Fed mandated Goldman and its rivals to become bank holding companies
after they had to draw on emergency funds during the 2008 crisis to remain solvent. The bank has no intention of opening bank branches but will provide a deeper level of service to wealthy clients by collecting deposits and loaning money to them for houses, art, boats, and other such assets.
The banking unit at Goldman currently represents about 10% of the bank’s total assets. Goldman’s deal-making business began to suffer because corporate heads are reluctant to invest cash into risky assets while the economy is still weak.