Exclusive-Goldman Sachs aims to double lending to wealthy private bank clients

By Saeed Azhar

NEW YORK (Reuters) - Goldman Sachs aims to double its lending over the next five years to ultra-wealthy private bank clients with account sizes exceeding $10 million, as it gathers more deposits to supercharge lending, the bank's private banking chief told Reuters.

The plans, previously unreported, were disclosed to Reuters by Nishi Somaiya, Goldman's global head of private banking, lending and deposits. The Wall Street giant wants to make more loans to wealthy individuals and families for big purchases, ranging from luxury homes to sports teams, as part of its strategy to bolster its wealth management operations.

Goldman declined to quantify the full scope of its lending to wealthy clients, who typically have a net worth of at least $30 million. The private bank's outstanding loans stood at $33 billion in the first quarter. That does not capture other undisclosed commitments, which could add more to the total.

"We were not really focused on lending to our private wealth clients -- we did a little bit of it, but it wasn't a big focus," CEO David Solomon told Reuters in an interview. "They have borrowing needs and we're well positioned to serve them competitively."

The lending push is a silver lining from Goldman's ill-fated consumer business. While the expansion into retail banking largely flopped and was unpopular among some employees and investors, it still attracted a surge of deposits into consumer savings accounts.

Goldman's total deposits jumped to $441 billion in the first quarter, with over 39% coming from consumer accounts, versus $190 billion in total deposits at the end of 2019.

Those deposits have also been put to use as a cheap source of funding for Goldman's markets division.

The unit posted record growth in financing in the first quarter for trading and private equity clients, by providing short-term loans to clients using their holdings such as real estate assets or securities as collateral.

As its deposits swelled, "we have grown, and will continue to grow, lending across our institutional businesses," Somaiya said.

Goldman's lending in wealth management as a percentage of its wealth client assets is 3%, well below an average of 9%among its peers, according to a report by Autonomous Research.

Bank of America's total outstanding loans and leases to wealth management clients stood at around $220 billion at the end of its last financial year, similar to JPMorgan Chase's.

"There's a real opportunity for us to grow in our private banking activities," given that gap, Somaiya said.

The expansion of lending to wealthy individuals who have assets of at least $30 million, as well as to private equity firms and asset managers, helps Goldman broaden its business beyond trading and investment banking.

"This is a way to increase their wallet share of a client who they already have a relationship with," said Ebrahim Poonawala, banking analyst at Bank of America.

"You deepen the client relationship, you create sticky revenue."

Investors will watch to see if the wealth lending improves the return on equity (ROE) for the bank's broader asset and wealth management division.

Goldman has set a target to boost the unit's ROE from a current 9.9% to a mid-teens percentage in the medium term.

Its asset management division is also making more loans using outside money from investors instead of the bank's own balance sheet.

Goldman Sachs Asset Management set a goal to more than double its private credit portfolio to $300 billion in five years.

Lending is seen as a strategic tool to expand Goldman's services to its ultra-high net worth clients who have a broad choice of lenders and are infrequent borrowers. "We can provide them leverage often against illiquid assets, if they need lending for an acquisition - home, hobby, another company, sports team - or want to use a margin loan against securities to invest more," Somaiya said.

For instance, wealthy clients can use their holdings of alternative assets or art hanging on their walls as collateral for the loans, she added. "We are creating liquidity for a rainy day," she said.

(Reporting by Saeed Azhar, additional reporting by Lananh Nguyen; Editing by David Gregorio)