Goldman Sachs Moves Deeper into Retail Lending with Fidelity Deal

By Liz Hoffman and Sarah Krouse Features Dow Jones Newswires

Millions of Americans who want to borrow up to $25 million have a new potential lender: Goldman Sachs Group Inc.

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A new partnership with Fidelity Investments announced Thursday will enable the Wall Street firm to offer securities-based loans to roughly six million accounts managed by broker-dealers, family offices and wealth advisers that use Fidelity's technology. Goldman currently offers such loans to fewer than 12,000 ultrawealthy clients of its private bank.

The move enables Goldman to gain access to millions of potential borrowers at a time the bank has been trying to lend more. It is the latest attempt by a firm known for its investment banking and trading to reach Main Street customers without a network of brick-and-mortar branches.

The centerpiece of the action is a new online platform, called GS Select, that will offer loans of between $75,000 and $25 million, with borrowers' portfolios of stocks and bonds serving as collateral, the companies said Thursday. Goldman's software can analyze the holdings and make a decision within a day about how much to lend and on what terms.

Fidelity, meanwhile, gains another offering for the 3,850 wealth managers and brokers on its platform. Those firms use Fidelity to house, trade and manage their customers' assets.

Securities-backed loans are a booming business on Wall Street, as brokerages search for ways to offset falling trading commissions. Merrill Lynch parent Bank of America Corp. had $40 billion in such loans on its balance sheet at the end of last year, up 140% from 2010. Morgan Stanley's customers had $30 billion in these loans, more than double from 2013.

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These loans can generate needed cash without triggering taxes for borrowers or forcing investors to sell higher-yielding investments. Borrowers often such loans to pay taxes, remodel homes and refinance more-expensive loans.

Critics say they sometimes aren't clearly explained and can saddle savers with unnecessary debt.

Goldman currently offers securities-backed loans to clients of its private bank, where they account for more than half of the unit's $29 billion in loans outstanding. But with fewer than 12,000 clients--versus, for example, Morgan Stanley's 3.5 million--the demand is limited. Fidelity's network represents six million accounts that could become Goldman borrowers, although the Goldman loans won't be available to Fidelity's own retail brokerage or wealth-management clients.

Fidelity won't make money on the loans, according to Mike Durbin, head of Fidelity institutional product. Instead, they are another way to retain customers.

The partnership is the first of several Goldman expects to strike, said Andrew Kaiser, head of Goldman's private bank.

Small wealth advisers and independent broker-dealers are good fits because they aren't already connected to a bank, he said.

Goldman hasn't historically been a major lender, an area it left to commercial-banking rivals. But it has been embracing loans over the past few years to replace declining revenues in core businesses like trading.

Marcus, the online platform it launched last fall to make small personal loans, has lent more than $1 billion. Goldman is also building a robo adviser to attract consumer clients, according to people familiar with the effort.

In partnering with Fidelity, Goldman is targeting America's "mass affluent." That group is better-off than the average Marcus borrower but not as wealthy as customers in Goldman's private bank, where the average account size is about $50 million.

Brokers will apply online for loans on behalf of their customers, but they can call a Goldman call center in Salt Lake City for advice and answers.

"It's the right mix, to us, of human touch and digital efficiency," Mr. Kaiser said.

Fidelity has funded its own securities-backed loans for about a decade, but it has turned to banks as demand has increased. It partnered with U.S. Bancorp to extend more loans about three years ago.

Write to Liz Hoffman at liz.hoffman@wsj.com and Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

July 27, 2017 00:21 ET (04:21 GMT)