Goldman Sachs Trading Boosts Earnings Despite Archegos Capital


Goldman Sachs Buys GreenSky for its Marcus platform

Goldman Sachs (GS) is buying GreenSky (GSKY) now and hoping it pays off later in an all-stock transaction valued at about $2.24 bln. The buy now, pay later (BNPL) space continues to stay hot as the GS deal comes after many transactions this month involving the space, including PayPal’s (PYPL) $2.7 bln acquisition of Paidy, Square’s (SQ) $29 bln acquisition of Afterpay, and Amazon’s (AMZN) partnership with Affirm (AFRM).

GS paying $12.11/share to acquire GSKY, a 50% premium over what GSKY was trading at previously. It could also be a response to GSKY’s stock seemingly having been stuck in the mud since its May 2018 IPO, trading over 65% lower before GS’s announcement today.

GS views the acquisition as another positive step in its strategy to become the consumer banking platform of the future by bolstering its Marcus digital platform, which issues unsecured consumer loans.

Marcus is a part of GS’s Consumer Banking division, a component of the company’s Consumer and Wealth Management (CWM) segment, which made up about 11% of total revs in Q2 (Jun), or about $1.75 bln. CWM was also GS’s second-fastest-growing segment behind Investment Banking in Q2, growing 28% yr/yr. However, what stands out is that Consumer Banking experienced the most rapid growth of any division at 41% yr/yr.

GSKY should also help bring more prime borrowers to GS. As of Q2, 90% of GSKY borrowers had credit scores over 700, with 41% of the loan servicing portfolio comprising borrowers with credit scores over 780.

The BNPL space is staying hot mainly due to cheap credit, allowing companies such as GSKY to offer a solid alternative to traditional credit cards that tend to carry higher interest rates. AFRM is already planning to launch a debit card that will automatically turn any eligible purchase into a BNPL transaction. Since GS offers investment accounts, it could be planning to launch a BNPL debit card linked to users’ investment accounts, similar to Robinhood’s (HOOD) debit card.

Overall, investors are not overly excited about GS acquiring GSKY. However, given that fintech companies PYPL and SQ — which offer services that directly compete with GS are bolstering their BNPL offerings, it makes sense that GS is looking to do the same. With GSKY’s over 10,000 merchants, GS is looking to continue the strong growth of its Consumer Banking division, and bringing in prime borrowers adds to its revenue without taking on too much additional risk. We view the acquisition favorably as a means to help GS remain competitive in an increasingly digital world by expanding into the hot BNPL space.