Goldman Sachs break up with Apple could cost up to $4 billion

Goldman Sachs’ Diversification Strategy and Consumer Banking Challenges

In 2016, Goldman Sachs embarked on a diversification strategy, launching Marcus by Goldman Sachs, an online bank offering personal loans and savings accounts. This move aimed to target the affluent market. However, Goldman faced challenges in its consumer banking operations, leading to losses and a shift in focus.

Goldman’s Reorganization and Platform Solutions Unit

In 2022, Goldman Sachs restructured its operations, consolidating asset and wealth management into one segment and creating a second segment for investment banking, global markets, and trading. The bank’s third unit, platform solutions, housed transaction banking, consumer partnerships (including credit cards with Apple and GM), and specialty lender GreenSky.

The End of Goldman’s Credit Card Partnerships

Goldman Sachs is reportedly exiting its credit card partnerships. In November 2022, an agreement was reached with GM to explore a new card issuer, with Barclays likely to take over the business. Apple has also decided to terminate its credit card partnership with Goldman, with JPMorgan Chase in talks to acquire the program.

Strategic Implications for Goldman Sachs

According to Mike Mayo, managing director at Wells Fargo Securities, the sale of Goldman’s credit card portfolios would pave the way for the bank to eliminate its platform solutions unit and sharpen its focus on its core businesses: global banking and markets (GBM) and asset and wealth management (AWM). Mayo sees the exit cost as a potential challenge, estimating it could range from $500 million to $4 billion.

Apple’s Credit Card Negotiations

Apple has held discussions with several potential buyers for its credit card business, including Synchrony Financial and Capital One. However, JPMorgan Chase is reportedly the frontrunner, with talks advancing in recent weeks. Apple is seeking a fair price for the roughly $17 billion in outstanding balances in the program.

Goldman’s Financial Impact and Analyst Outlook

Goldman Sachs expects to incur a $400 million loss related to the transition of GM card business and other retail ventures. The bank’s stock initially declined on news of the loss but has since rebounded. Mayo maintains an “overweight” rating for both JPMorgan and Goldman Sachs, with price targets of $225 and $550, respectively.