Goldman Sachs

Goldman Sachs is expanding its European wealth management business to offer loans to rich clients in a move that is taking it further into the domain of centuries-old private banks in Europe.

The US investment bank this month quietly launched a European lending unit for its private wealth management clients in another push beyond its volatile trading business into more traditional areas of banking.

The move highlights how Goldman, seen as the last remaining true-bred global investment bank, has become increasingly willing to use its balance sheet for other businesses ever since it converted into a bank holding company and built up customer deposits after the financial crisis.

The new European lending business has a goal of building up a $5bn loan book within the next three years. It is part of London-based Goldman Sachs International Bank and caters to Goldman’s roughly 1,700 wealthiest clients across Europe, the Middle East and Africa.

It will comprise mostly secured loans for a wide variety of purposes including liquidity facilities, portfolio diversification, tax payments or luxury purchases such as yachts.

“Wealthy clients want leverage and they are good quality borrowers. The loan-to-value ratios are very conservative,” said Christopher French, Goldman’s head of private wealth management in the region.

But he added that the move for now was aimed mainly at existing clients rather than “a proposition to gain new clients”.

Goldman established a lending business for rich clients in the US in the wake of the financial crisis. But in Europe, it has so far only given a limited amount of margin loans – lending against securities – to its wealthy customers.

The bank also aims to hand out mortgages for prime properties in London and elsewhere, but it is only expecting regulatory approval to do so within the next 12 months.

Lending to the super-rich has become a growth market for large wealth managers including UBS and Credit Suisse. It is perceived as low-risk, provides a steady income stream and helps to retain clients.

Goldman does not plan to grow its balance sheet as the expansion of the loan book contrasts with a sharp reduction in capital usage in some of its trading areas, particularly in fixed income.

Its investment banking rival Morgan Stanley has already embraced the universal banking model in recent years by curbing its trading business while expanding its wealth management, retail and lending businesses.

But Goldman’s move into more bank lending does not involve plans for a big retail presence, and it does not have plans for a network of branches.

Last month, it promoted Stephen Scherr, a 21-year Goldman veteran, to a new position of chief strategy officer with a mandate to increase the size of its commercial bank and wealth management division.

With a minimum account size of $10m and an average account balance of $40m, Goldman’s wealth management division is catering for a far richer clientele than most of its competitors.

Its London unit operates from a simple open-plan office at Goldman’s European headquarters on Fleet Street, in a sharp contrast to the art-studded and plush Mayfair houses of most of its private banking rivals.

Goldman’s assets managed for wealthy clients in Europe rose 15 per cent in the past year to $30bn at the end of March.

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