Thursday, December 04, 2008

Goldman's Online Banking Plans

Yesterday's Wall Street Journal accorded the lead article placement in its Money & Investing section to a piece entitled, "Goldman Considers Online Bank."

It's not April 1st, so I guess we have to take this seriously.

These two recent posts, here and here, discuss my thoughts on how successful Goldman Sachs is likely to be in commercial banking. Yesterday's news doesn't change my thinking.

Yes, an online banking unit would not 'change the culture' at Goldman, per Lloyd Blankfein's self-expressed criterion.

But exactly what is the hook for consumers? I don't even do online banking constantly now. If I did, it would be for DDA account management, not to buy CDs or just place deposits.

In fact, this sort of business inevitably becomes very price-competitive. Hardly the image one has of Goldman, is it?

I don't understand how the Goldman Sachs management team could be so blind as to believe that simply by opening and online facility to take deposits, their long term worries over funding structure have ended.

Just the whole idea of a Goldman Sachs consumer bank strikes me as, well, ridiculous. It's as if they don't see any competition whatsoever in this area when, in fact, many commercial banks have been in this product/service space for years.

It also doesn't change the fact that, even today, Goldman remains an over-levered hedge fund with a bank charter or two. It's only a matter of time before they have to slim down their assets even further to meet either Federal or New York state banking requirements.

With the firm's first-ever quarterly loss reported this week, it hardly bodes well that future earnings will have to come on a smaller asset base amidst a slower market for the firm's main non-trading businesses, M&A and underwriting.

If this is the best Blankfein's team can come up with for Goldman's new operating environment, I feel sorry for the firm's current shareholders.

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