Goldman Sachs (NYSE:GS) CEO David Solomon stated that the bank’s exit from its credit card partnership with General Motors is proceeding as anticipated, without additional complications. This follows reports indicating the bank could incur a substantial loss from the exit, highlighting the challenges faced in the credit card lending space.
The bank’s decision to exit the GM credit card business reflects ongoing issues within the credit card sector. Previously, Goldman Sachs struggled with problematic accounts that garnered higher charge-off rates compared to the industry average. These issues started after the bank acquired the GM credit card program from Capital One and began launching new accounts.
Solomon’s Perspective
During a CNBC interview, David Solomon dismissed notions that the exit was overly complicated. Solomon remarked,
“It is very unusual for people to transition credit card programs in the middle of contract periods.”
This context came amidst reports of Goldman Sachs facing a significant financial hit from selling its GM credit card business and another smaller unit.
Financial Implications
The Wall Street Journal described the situation as “messy,” attributing the difficulties to lax underwriting standards. After Goldman took over from Capital One, the charge-off rates on the newly originated accounts surpassed 10%, significantly higher than the 4.5% average for American commercial banks. This led Goldman Sachs to seek new customers through third-party websites, which consequently attracted users with lower credit scores.
Goldman Sachs is currently negotiating with Barclays to sell the portfolio of loans at a discount, marking another strategic retreat from its retail banking ventures. This comes as the bank continues to seek buyers for its loan portfolio tied to its other credit card partnership with Apple (NASDAQ:AAPL).
The ongoing challenges Goldman Sachs faces in its credit card business underscore the complexities of managing consumer credit risk. The decision to exit the GM partnership aligns with the bank’s broader strategy to mitigate further financial losses and regulatory scrutiny. Understanding these dynamics is crucial for stakeholders and investors to navigate the evolving financial landscape.
