Goldman Sachs' online venture
Goldman Sachs, which since 1869 has provided services to the rich and powerful, has decided to open up to the general market and offer its services to a wider public. It is now offering online savings accounts for a dollar, in a measure intended to generate new funding flows.
The firm claims that the account can be opened in only ten minutes, and the only requirement is for users to be over 18 and resident in the United States. In addition to this instant-access savings account, Goldman Sachs also offers deposit certificates from six months to six years. These first deposit certificates deliver a 0.7% annual yield, five times higher than the offer of US banks.
What is the reason behind this market expansion?
The expansion in Goldman Sachs' market is driven by the pressure on the US banks to develop new funding methods. The main US banks have posted poor results during the first quarter, which thrown the need to generate profits into sharp focus. Goldman's situation is much worse than others, as this last quarter saw a 6.4% return on capital on an annual base.
To reverse this situation, last week Goldman Sachs created GSBank, a platform it has inherited through the $16-billion dollar acquisition of deposits from GE, a subsidiary of General Electric. With this move Goldman aims to generate more revenue by gaining access to more customers by offering the possibility of opening an account with one dollar.
Goldman Sachs obtained 145,000 new retail depositors with this agreement. Now its goal is to go even further, so it is offering annual interest rates of 1.05% on a savings account –far higher than currently available from the main US banks such as Citibank and Bank of America.
This new approach by Goldman Sachs is designed to comply with regulatory requirements which require major banks to finance their activities through deposits rather than short-term bonds or loans.