Goldman Sachs will begin lending money to regular people Thursday, after almost 150 years of avoiding them like the plague. The company that made its name as a banker to big business, government and the rich is launching Marcus, a new consumer finance business named after the bank's founder, Marcus Goldman.
The first offering from Marcus will be loans for consumers wanting to pay off their credit card debt. The loans, of up to $30,000, will come with fixed interest rates and terms of two to six years. The market for these credit card consolidation loans is highly competitive, and puts Goldman head to head with the biggest online "marketplace lenders" like Lending Club and Prosper. About 60% of Lending Club's loans, the company says, are for refinancing existing loans or paying off credit cards.
Marcus's annual rates will range from 6% to 23%, according to information published Thursday morning on its website. And while Goldman hasn't disclosed exactly how the loans will be underwritten, Marcus says in a disclosure that the rates will depend on borrowers' credit score, credit history, and how long the loan's term is. Marcus's website says that "only the most creditworthy applicants qualify for the lowest rates." Online lending businesses that offer relatively large unsecured loans traditionally target borrowers with good credit, so that they can offer lower rates than credit cards.
But Goldman has hinted that despite some similarities to how other online lenders work, it may have some distinct advantages.
Online lenders like Lending Club have to raise huge amounts of capital or borrow money from investors like hedge funds to be able to pay for all those loans they dish out to customers. Goldman happens to have plenty of money on hand, and can easily fund a consumer lending business. And unlike large banks, Goldman doesn't offer credit cards, meaning the conflict of offering both credit and a loan to pay it off isn't an issue.
At first, Goldman says the loans will be offered to "millions of prospective customers," who will receive an invite in the mail. (Despite being internet-based businesses, big online lenders are massive users of direct mail marketing). Stephen Scherr, the Goldman Sachs executive who heads up its chartered bank and is the company's chief strategy officer, said at a conference last month that Goldman would use a "conventional setup for customer acquisition."
According to the New York Times, the choice of the name Marcus name was the subject of "much internal discussion," and beat out "Samuel," which was the first name of Samuel Sachs, the bank's co-founder. The single first name, reminiscent of startup health insurer Oscar, online mattress retailer Casper or student debt refinancing company Earnest, is "intended to convey a tech-era trendiness from a company that is not known for its youthful bona fides," the Times reported.
"For many who manage debt payments on high-interest rate credit cards, a straightforward personal loan is a better solution," Marcus chief Harit Talwar said in a statement. "Marcus offers an option for consumers who are searching for a simpler alternative to credit card borrowing, where rates can change and multiple fees can be charged."
The lending business is not the company's only foray into Main Street banking. Goldman previously bought GE Capital's online consumer banking business, acquiring some 150,000 accounts and later relaunched and rebranded it as part of GS Bank in April. The bank acquired $8 billion worth of deposits and $8 billion of certificates of deposit as part of the deal, and has since added on some $3 billion more, Scherr said last month.
If Goldman is now going to lend to the sheep (aka... us, the dumb public) then you know it's a sign that a major top in the stock market is coming soon as that's what happened with the real estate bubble in the end as well. If you remember you couldn't qualify for crap back in 2002 without a perfect credit score, 5-10% down payment, 3-5 years at the same job (with tax returns... no "independent contractors"), but by 2005 that all changed.
You could walk in to a mortgage on a new home with no down payment, no tax returns, no proof a income, and a horrible credit score. If you could fog a mirror you were approved. Of course it topped out and ended around January of 2007 and then the stock market crashed later that year.
Clearly this is a major sign that Goldman is planning on pumping up the stock market for one final wave up of buying... but it will be the sheep buying it as Goldman Sucks sells into it. They know the crash is coming and the exact date I'd bet. But, I don't see this lasting 2 years like the real estate bubble did... instead I'd give it 6-9 months tops.