October 19, 2018
Who said lending unlocked by QE failed to “trickle down” to the general population.” Well, maybe not the general population, but certainly the wealthiest 0.001%, or those who don’t actually need the money.
In addition of making money through “traditional” means like trading and investment banking fees, both Goldman Sachs and Morgan Stanley made it clear this week that they are also heading full-scale into the business of lending money to their millionaire and billionaire wealth management clients; in fact, lending to the 0.001% is now a key part of both banks’ growth strategy.
A Bloomberg report states that it can take as little as five minutes to underwrite a loan for wealthy clients who want to start a new business, pay down taxes or obtain a bridge financing for that new mansion. Morgan Stanley has tripled the amount of these loans over the last five years and Goldman Sachs is working on expanding this business overseas. Embracing this type of relatively risk-free lending comes as a result of banks being forced into becoming bank holding companies by the financial crisis.
With other revenue-generating avenues narrowing, lending to wealth management customers is a key part of Goldman’s plan to grow its revenue. Morgan Stanley said this week that loans in the wealth unit climbed 7% in the past year to $82 billion, and interest income jumped 22%.
The bank said in a January strategic update that extending credit was a key priority for its wealth management unit, which has $2.5 trillion in assets.
Christian Bolu, a bank analyst at Sanford C. Bernstein, told Bloomberg: “Relative to things like the securities trading markets that generally haven’t grown post crisis, the wealth market continues to grow and the ultra-high-net worth market is even more attractive, it grows fast and has high margins. It tends to be very bespoke; you can’t…