Private Banking remains a target of the world’s global banking franchises – though competition over the exclusive customers often causes fees on those customers to plummet. Goldman, having existing relationships with a strong roster of wealthy clients, may have the inside track. Goldman’s new British branch will be in the same building as its current London corporate headquarters, and will specifically be part of Goldman’s commercial bank: its first overseas expansion. A person familiar with the matter told Financial Times that this application was a formality, designed to let Goldman’s commercial bank do business in the U.K.
During the financial crisis of 2008, the New York based investment banks sought to obtain bank holding status at the behest of the Federal Reserve. The going assumption was that by being bank holding companies, investment banks gained access to the discount window and enables crisis time funding, something that potentially could have saved Bear Stearns and Lehman Brothers. Since investment banks weren’t regulated by the Federal Reserve, they lacked the ability to borrow despite the large scale run that was underway.
Blanfein has remarked in the past that the firm might have “backed into a big opportunity,” but surely is making the most of its commercial bank status. The private bank alone had already accumulated $50 billion in deposits and $100 billion in assets as of July.
Due to increasing regulation, the big banks have started to reevaluate their business models, moving them increasingly away from the highly profitable yet highly volatile proprietary-trading models that saw them book record profits in the 1990s and 2000s, into the more boring but infinitely more stable lines of business — like lending money — that used to be banks’ whole raison d’etre.
So with its new private bank, Goldman will be lending money to clients and making money back on interest, just like all banks used to do. And it will be doing it in London, a city, like New York, where there’s plenty of wealth to chase.
