Wall Street’s Goldman Sachs moves quietly into Main Street

NEW YORK (AP) — More homeowner, less hedge fund titan. Goldman Sachs, long known for its super-rich clients and well-connected executives, is starting to act a lot more like a neighborhood bank.

The most Wall Street of Wall Street firms really wants people to start thinking about it the next time they need to open a bank account or borrow money. It's paying above-average rates on online savings accounts and offering that stodgiest of investments, good old-fashioned CDs. Personal loans are available through its Marcus brand, a friendlier reference to co-founder Marcus Goldman.

For a firm that never had a reason to advertise, Goldman now runs Marcus commercials with the casual tagline: "Debt happens."

During most of its nearly 148-year history, the main way to do business with Goldman was to be incredibly wealthy or a CEO at a major company. That's changing.

"We want to grow a robust consumer banking business," said Stephen Scherr, Goldman's chief strategy officer and CEO of GS Bank.

Goldman's retail banking business is less than two years old and tiny compared to the overall size of the firm. The company hasn't yet even broken it out as a business line in its quarterly financial statements because of its size. And Goldman isn't backing away from its traditional strengths: trading and advising.

Trading is inherently a volatile business, and a quiet market weighed on Goldman's second-quarter results posted Tuesday. It earned $1.63 billion, or $3.95 a share, basically unchanged from a year earlier. The division that contains its trading desks had revenue of $3.05 billion, down 17 percent. Fixed income, currency and commodity trading revenue fell 40 percent, and Chief Financial Officer Martin Chavez said its commodities division had its worst quarter since the firm went public in 1999.

Goldman executives see the new consumer banking division as a way for the firm to expand into businesses it traditionally wasn't involved in. But how well Goldman's brand and image might appeal in the consumer business remains to be seen.

"I had a few readers tell me that they had no intention to do business with Goldman, but those comments were pretty limited," said Ken Tumin with DepositAccounts.com, a review site for savings accounts and other bank products.

The consumer products Goldman is offering are pretty conventional. An online savings account with its GS Bank requires no minimum opening deposit and pays an interest rate of 1.20 percent. Looking for longer-term savings? Goldman offers CDs with terms from six months to six years, paying as much as 2.30 percent. And fixed-rate, no-fee personal loans are available through Marcus by Goldman Sachs.

Firm executives aren't saying what future products they may offer. Analysts say it's not unreasonable to think Goldman may consider checking accounts and student loans. Just don't expect Goldman to be opening branches anytime soon, or ever.

"Whatever size it's going to be, it's going to be entirely a virtual business," said Michael Wong, an analyst at Morningstar.

Goldman's path to Main Street has its origins in the financial meltdown of 2008.

At the height of the crisis, Goldman and its rival Morgan Stanley — both trying to avoid the bankruptcy fate of Lehman Brothers — converted from investment banks to commercial banks. They did this largely to gain access to emergency tools the Federal Reserve created to support the failing financial system.

Goldman could then accept and hold deposits. But it did little with its commercial bank label for years.

That changed in 2015, when Goldman announced it wanted to buy the deposits of GE Capital, and later announced it had hired Harit Talwar from Discover Financial Services to explore creating a consumer lending business. The purchase of $16 billion in deposits from GE provided the firm a stable source of funding. Goldman opened GS Bank in mid-2016 and started testing Marcus later that year.

Along with it opening up Goldman to new forms of business, the deposits are attractive for another reason: Unlike other forms of capital, deposits are less likely to fall in times of market stress.

"It's providing us greater diversification for the firm, and that inherently is a good thing," Scherr said.

Goldman has since added $5 billion in deposits to GS Bank on top of the $16 billion it bought. Marcus, which launched less than a year ago, has made $1 billion in loans to consumers. The firm expects to do another $1 billion in loans by the end of the year.

Online lending has exploded in the last few years — which has raised concerns about the industry getting too big too quickly. Also, many of these loans have been made by companies that haven't been through a recession. Goldman is using its own money to make loans, unlike others who are selling the loans to investors. It says that means it can make more customizable loans with more flexible due dates.

"We're very excited about crossing the $1 billion mark, but it's been more important to do it as a responsible lender. We don't want to cause more stress for our borrowers," Talwar said.

Ken Sweet covers banks and consumer financial issues for The Associated Press. Follow him on Twitter at @kensweet.