Wall Street giant is increasing loans to hedge funds, private equity and the ultrarich By AnnaMaria Andriotis Jan. 14, 2024 5:30 am ET 79 Goldman Sachs is shifting to do more lending to private-wealth clients, individuals and families with an average of $60 million with the bank. PHOTO: JUTHARAT PINYODOONYACHET FOR THE WALL STREET JOURNAL Goldman Sachs has given up on lending to Main Street consumers. Now it’s doubling down on wealthy clients. The Wall Street giant is increasing lending to its private-wealth clients, individuals and families who on average have $60 million with the bank. In its trading department, loans to institutional clients, including hedge funds seeking to borrow for stock purchases, are on track to produce the highest revenue in at least three years. In all, Goldman’s loans and lending commitments outstanding, excluding consumer, totaled $327.5 billion at the end of the third quarter, up about a third from the same time in 2020. The firm is looking for ways to diversify its revenue stream beyond dealmaking and trading. Consumer lending was meant to help with that, but the bank has been retreating from that business after incurring billions of dollars in losses from the failed effort. When Goldman reports fourth-quarter and full-year earnings on Tuesday, it is expected to highlight growth in nonconsumer lending at a time when dealmaking is depressed. Lending to big clients has long been seen largely as a way to get other business from them. While that remains the case, Goldman is also interested in generating more net interest income at a time of elevated rates. Some of the lending increase is being funded by deposits from savings accounts, a portion of the abortive consumer push that the bank plans to stick with. It had accumulated $150.6 billion of consumer deposits at the end of the third quarter compared with $120 billion at the end of 2022. More lending comes with risk, including that of higher defaults. Goldman says that nearly all of the lending is secured by borrowers’ investments, but losses could mount if there’s a big drop in the value of the collateral or if there’s a recession. Banks suffered billions in losses, for example, when Archegos Capital Management, which had borrowed heavily to buy stock, imploded in 2021. Goldman largely sidestepped those losses. Lending more to the wealthy is a linchpin of the new strategy. In recent weeks, Goldman rolled out a new kind of loan to rich clients of its asset- and wealth-management division. The loans allow people to borrow against the value of their investments in certain private-equity, private-credit and other illiquid funds. David Solomon, chairman and CEO of Goldman Sachs Clients can use the loans for pretty much anything, whether buying mansions or art or investing in more private funds with Goldman or other institutions. The loans are critical to Goldman’s plans to boost revenue in asset and wealth management, which Chief Executive David Solomon is counting on to become a bigger source of revenue and profit. “This one is particularly strategic,” Nishi Somaiya, global head of private banking and lending, said of the push to lend more to the ultrarich. “It hits all the things that are really important to us.” Revenue from private banking and lending to wealthy clients increased 12% during the first nine months of last year from the same period in 2022. In Goldman’s sprawling trading business, revenue from equities financing was higher during the first nine months of 2023 than it was during the same period in each of the prior three years—the furthest back Goldman discloses such figures—boosted by increased lending and the stock-market rally. Equities lending and trading sat on different floors until 2019, shortly after Solomon and president John Waldron took over and insisted that they move next to each other. The directive came as part of their companywide initiative to encourage employees—in part through bonuses—to direct business to other units of the bank. A swath of loans are originated under what Goldman refers to as FICC financing. They include capital-call loans, which advance private-equity and other investment firms cash to make investments while they wait for their own investors to fulfill their commitments. Regional banks were big in the business, and the banking crisis last year created an opening for large banks to grab more market share. Goldman recently acquired $15 billion of capital-call commitments, including about $9 billion of outstanding loans, that belonged to Signature Bank before regulators seized it last year. Goldman is also lending more to private-equity firms that are borrowing against their investments. Demand for these loans has been rising as private companies have held off on going public until valuations improve and as private-equity firms look for ways to return cash to their investors. And even though the bank is bidding adieu to lending directly to consumers, it has been extending more credit lines to nonbank lenders that specialize in loans consumers use. Goldman over the past year has been providing more financing to UWM Holdings UWMC 0.46%increase; green up pointing triangle , which works with mortgage brokers, and tried to strike a deal with Rocket Mortgage, according to people familiar with the matter. UWM and Rocket Mortgage are among the largest players in U.S. mortgage lending. https://www.wsj.com/finance/goldman-sachs-lending-wealthy-clients-e5dab436?mod=hp_lead_pos4