By John Foley
LONDON (Reuters Breakingviews) - The so-called vampire squid of global finance will soon have a new tentacle: UK retail banking. Goldman Sachs plans to start taking British consumers’ deposits next summer, using the Marcus brand already launched in the United States. A lack of historical baggage, paired with the economies of scale that come from being a global financial giant, could be a distinct advantage. Given the limp returns currently on offer in investment banking, it’s certainly worth a shot.
Goldman’s main assumption is that bigger isn’t necessarily better in retail banking. That’s correct, to a point. Marcus customers will benefit from the same deposit insurance as those who trust their finances to larger rivals such as Lloyds. But provided deposits don’t exceed 25 billion pounds, onerous Bank of England rules on “ringfencing” won’t apply. Goldman can therefore in theory use cheap deposits to help fund its investment banking activities, and without the need for a pesky branch network. With around 6,000 UK staff already, adding 100 or so recruits to Marcus by next summer will barely move the dial.
Nor will the new bank be burdened by what are euphemistically known as “legacy issues”, such as decrepit computer systems, or the past mis-selling of loan insurance that has cost the four biggest UK lenders over 36 billion pounds in provisions. The tribulations of big British lenders like Royal Bank of Scotland and Barclays have already spawned tech-centred newcomers like Atom, Fidor and Monzo. Such small challenger banks generate returns on equity that are triple those of their big peers, according to a KPMG report last year – and that’s without the plutocrat-friendly brand and pre-existing army of tech experts that Goldman enjoys.
Besides its fashionable lateness, the best thing going for Goldman’s new venture is probably its lack of transparency. Because the UK bank will be buried in a group with $907 billion of assets, shareholders won’t have a detailed sense of how it is performing until Chief Executive Lloyd Blankfein chooses to tell them, or until it becomes of significant size. In other words, Marcus can nurse losses for a good while without investors getting twitchy. Not many banks can do that.
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