Goldman Sachs to back further away from consumers

Goldman Sachs is in advanced negotiations to divest its specialty lending unit, GreenSky, to a consortium of investment heavyweights, marking a significant pivot away from its brief foray into consumer lending.

Leading this consortium are investment titans Sixth Street, Pacific Investment Management, and KKR. Insiders privy to the discussions told the Wall Street Journal that the deal could be valued around $500 million. This figure is significantly less than the approximate $1.7 billion Goldman shelled out for the acquisition roughly 18 months prior. Goldman has already made a substantial write-down in its books for goodwill.

Goldman's decision to divest follows an exhaustive auction process that attracted interest from a range of private equity entities and financial institutions. The bank has now narrowed its focus and entered exclusive negotiations with the consortium spearheaded by Sixth Street.

Originally, the Wall Street behemoth acquired GreenSky — a lender known for offering home renovation loans to consumers — with aspirations of establishing a formidable presence in the consumer lending space. Goldman's CEO, David Solomon, had lauded the acquisition as a step toward realizing the vision of Goldman being the “banking platform of the future”.

However, the acquisition wasn't without its internal disagreements. Solomon had championed the GreenSky purchase in 2019 amidst reservations from several Goldman partners. Their apprehensions stemmed from potential challenges in cross-selling other Goldman products to GreenSky customers and the premium valuation sought by GreenSky’s CEO, David Zalik.

GreenSky's journey under Goldman's umbrella faced turbulence as shifting market conditions and internal strategies began to diverge. Increasing interest rates adversely impacted GreenSky's business metrics, squeezing the margins on loan origination fees and narrowing the gap between its borrowing costs and consumer lending rates.

This isn't the first time Goldman has had to recalibrate its consumer-centric ventures under Solomon's leadership. Earlier, the bank signaled its intent to divest its Personal Financial Management division, an arm bolstered by the 2019 acquisition of United Capital.

Goldman's venture into the consumer space started under the stewardship of former CEO Lloyd Blankfein. Solomon's tenure amplified these efforts, with the bank ardently pursuing new credit card partnerships and diversifying its consumer banking portfolio. Despite these aggressive strides, Goldman revealed a staggering loss of nearly $4 billion from its consumer lending operations as of the second quarter this year.

San Francisco's Sixth Street boasts AUM of over $70 billion. It's joined in its bid by Pimco, an Allianz subsidiary with a whopping $1.8 trillion in assets, and KKR, which manages over $500 billion.