The Goldman Sachs Group (NYSE: GS) is reportedly in talks with American Express Co. (NYSE: AXP) regarding its Apple Inc. (NASDAQ: AAPL) credit card and other consumer-focused products connected with Apple.
Apple would have to give its approval to a transfer of the business to American Express. Goldman Sachs currently uses MasterCard Inc. (NYSE: MA) to issue Apple plastic. A change to American Express could potentially result in fewer merchants accepting the card, as American Express’ reach is less than MasterCard’s, although it’s growing.
The company with something to lose appears to be Goldman Sachs. The company’s consumer-facing Marcus division, which handles the Apple card duties, would feel the fallout.
In the first quarter of 2023, Goldman Sachs’ net revenue included a loss of approximately $470
million related to a partial sale of the Marcus loans portfolio and the transfer of the remainder of the portfolio to “held for sale.” That’s a designation for the company’s assets that it intends to sell. The loan portfolio sale proceeds were largely offset by a related reserve reduction of approximately $440 million in provision for credit losses.
Exploring Strategic Alternatives
In the first-quarter conference call, Goldman CEO David Solomon, whose moves surrounding the consumer division have been questioned by analysts, said the bank is exploring “strategic alternatives within our consumer platform businesses.”
However, he also said the bank was committed to growing its relationship with Apple, which may no longer be the case.
Goldman shares ended the June 30 session 0.17% lower, as the broad market and financial sector were both higher. Shares rebounded on July 3 along with the market in light pre-holiday turnover.
American Express shares traded higher following the report. American Express has been the better performer of the two financials, with a one-month return of 9.86%, versus Goldman Sachs’ return of -0.63%.
Although the story broke in the financial press, none of the companies have officially confirmed talks. Unnamed sources told reporters that although talks are taking place, it may be months before a deal, if any, takes shape.
Launched Consumer Division In 2016
Goldman Sachs, known primarily as an investment bank and trading firm, has been a Wall Street mainstay for decades. In 2016, the company made a play for consumer-facing business by launching its Marcus high-yield savings accounts.
In 2019, it launched its credit card business via the Apple deal, joining the ranks of other banks that issue cards for a specific retailer. The partnership was announced at one of the high-profile Apple events at which the company typically communicates about new products.
Earlier this year, Goldman and Apple rolled out a high-yield savings account with a 4.15% annual yield. A few weeks later, there were media reports that some account owners were having trouble withdrawing funds.
The Apple Card was made available in August 2019, with one carrot being the ability to apply and learn the amount of a credit line without going through the rigamarole of a credit check, which can ding an applicant’s credit score.
Apple's Cook: Thrilled By Positive Reception
In Apple’s fourth-quarter earnings conference call, in October 2019, Apple CEO Tim Cook spoke in glowing terms about the card launch, saying, “We've been thrilled by the positive reception we've seen,” adding that users could apply for the card in minutes through the wallet app on iPhone, and begin using it right away if approved.
“They've told us they love Apple Card's simplicity, privacy, security and transparency, which has helped them make healthier financial choices,” Cook said. He noted that the card had no fees and several apps and retailers were participating ina 3% cash-back program.
“We believe this has been the most successful launch of a credit card in the United States ever,” Cook said. He added that card users had access to 24-month zero-percent interest on iPhone purchases. That program was rolled out in December 2019.
Goldman’s initiatives in the consumer space also include its March 2022 purchase of installment lender GreenSky for approximately $2.24 billion. GreenSky, whose focus was home-improvement financing, was acquired by Goldman’s Marcus consumer-facing business unit.
Aimed To Become Leading Consumer Banking Platform
Shortly after the deal closed, Goldman Sachs’ Swati Bhatia, head of consumer proprietary business at Marcus, said in an interview that the company’s goal was to “become the digital consumer banking platform of the future for tens of millions of customers.”
However, those goals have been unraveling. GreenSky didn’t last long as part of the Goldman Sachs portfolio; GreenSky is now on the selling block, with analysts saying Goldman will take a significant write-down from what it paid just two years ago.
