Goldman Sachs: Four years after the launch of the Apple-Goldman Sachs credit card, Goldman is considering an exit due to perceived risks and lack of profitability. The anticipated unwinding of this partnership poses challenges for Goldman, especially considering its CEO David Solomon’s efforts to diversify the bank’s revenue beyond trading and investment banking.
Goldman Sachs, in seeking a buyer for its stake, may encounter pressure from bidders to reduce the value of its share, making it more enticing. This potential move follows a series of setbacks in Goldman’s consumer banking ventures, and analysts predict a writedown on the Apple card as the latest in a string of losses.
Prospective bidders are likely to negotiate for changes in the terms of the deal, potentially seeking access to Apple’s proprietary credit card data. While Apple currently does not sell cardholders’ data to third parties, bidders may push for adjustments. Credit card issuers like Synchrony Financial, Citigroup, and Capital One are considered logical partners if terms are altered.
The expected exit from the Apple partnership aligns with Goldman’s broader strategy to explore “strategic alternatives” for its consumer unit. This move signifies a shift away from Solomon’s earlier consumer-focused approach, signaling challenges in the bank’s foray into consumer banking.
Solomon had previously expressed the bank’s intent to address the challenges posed by its credit card business, aiming to eliminate the “drag” on earnings. The proposed exit comes after Apple submitted a proposal allowing Goldman to terminate the contract within the next 12 to 15 months.
Also Read: Apple Fin-Tech Breakup: Cutting Ties with Goldman Sachs in Surprise Split
Goldman’s initial entry into consumer banking, marked by partnerships with Apple and General Motors, has faced obstacles. Solomon’s acknowledgment of trying to rid the bank of the credit card business’s financial burden suggests underlying profitability challenges.
The Apple card venture posed unique challenges, with Goldman handling provisions for credit losses instead of sharing them with Apple. The underwriting challenge arose as Goldman, traditionally serving wealthy clients, ventured into making loans to less-affluent customers, including those with lower credit scores.
As the two companies sought to boost revenue, they extended cards to customers with varying credit profiles, accumulating losses for Goldman’s consumer business. The business costs were divided, with Apple covering marketing expenses, while Goldman managed customer service.
Goldman’s potential exit from the Apple card partnership represents a strategic shift and underscores the complexities of its consumer banking endeavors. The negotiations and outcomes in the coming months will play a crucial role in shaping Goldman’s consumer-focused trajectory.
Our Reader’s Queries
How long has David Solomon been CEO of Goldman Sachs?
David took on various leadership roles at Goldman Sachs, starting as president and co-chief operating officer in 2017. He then became the sole COO in 2018 before being appointed as CEO in 2018 and chairman in 2019.
What frat was David Solomon in?
As per The Wall Street Journal’s report, Solomon held the position of social chairman in his fraternity, Alpha Delta Phi, during his college days at Hamilton from 1980 to 1984. However, the fraternity’s activities were scrutinized during this period. On the Hill: A Bicentennial History of Hamilton College (pgs.) sheds light on the matter.
Where did David Solomon go to college?
In a statement to Insider, Tony Fratto, a spokesperson for Goldman, conveyed that David Solomon holds the students at Hamilton College in high regard. Fratto emphasized that Solomon did not make any remarks that could be deemed offensive to them.
Who is the CEO for Goldman Sachs?
David Solomon holds the esteemed position of Chairman and Chief Executive Officer, as well as being a member of the Board of Directors at The Goldman Sachs Group, Inc. He has an impressive track record, having previously served as President and Chief Operating Officer. Prior to that, he was Co-Head of the Investment Banking Division from 2006 to 2016. Mr. Solomon’s extensive experience and expertise in the industry make him a valuable asset to the company.