Tag: Goldman Sachs

Goldman Sachs initiates coverage on three power transmission stocks; Do you own?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Power Grid and Hitachi Energy India gained up to 6% in Thursday’s trade after global brokerage Goldman Sachs initiated coverage on two power transmission stocks —Power Grid and Hitachi India — with a ‘Buy’ rating and issued a ‘Sell’ rating on Schneider Electric Infrastructure.

Power Grid is among Goldman Sachs’ top pick with a 12-month target price of ₹355 per share. This implies a potential upside of nearly 30% from the stock’s closing levels on Tuesday.

It believes India’s largest transmission asset developer is a play on grid capex supercycle with large balance sheet. The company has the ability to fund 30% of the country’s financial year 2024 to 2032 estimates of grid capex while maintaining current dividend payout, the foreign brokerage said in a note.

Additionally, Power Grid has structural funding advantage and consistency of core regulated earnings, according to a report by Goldman Sachs.

For Hitachi Energy India, the brokerage has a 12-month target price of ₹8,250 per share, as it likes the company among the grid equipment manufacturers.

The company benefits from large total addressable market (TAM) and global technology leadership. It also has indigenous manufacturing capability in a globally supply constrained environment, Goldman Sachs noted.

The brokerage also said that Hitachi Energy India is positioning as a potential China+1 beneficiary as global supply chains re-align.

However, analysts at the brokerage firm believe that the risk-reward ratio offered by shares of Schneider Electric Infrastructure at its current market price is “unfavourable”.

Goldman Sachs has a price target of ₹470 on the stock. The price target implies a potential downside of 41% from Tuesday’s closing levels.

Schneider Electric Infrastructure shares have rallied 375% over the last 12 months and has gained over 40% so far this year.

Analysing India’s power capex requirements, Goldman Sachs in a note said the transmission capex is expected to have the second largest share of over $500 billion of total energy transition capex requirement of $1.7 trillion over the next 25 years.

The brokerage also said that the government is providing financial support worth $270 billion for energy transition by waiving central grid charges for renewables.

The support has helped India reduce the levelised cost of round-the-clock renewable and green hydrogen by 22% and 30% respectively, the brokerage noted.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Metro Brands shares may rise 28% on sports and athleisure opportunity: Goldman Sachs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Brokerage firm Goldman Sachs believes shares of Metro Brands will likely rise as much as 28% over the next 12 months as it expects the footwear brand to successfully leverage the sports & athleisure opportunity. Metro Brands recently entered its first sports & athleisure (S&A) brand strategic agreement with Fila.

Goldman Sachs has initiated coverage on two Indian footwear companies, one with a “buy” recommendation on Metro Brands and a price target of ₹1,450 and the other with a “neutral” rating on Bata with a price target of ₹1,470.

Bata’s price target implies a potential upside of 7% on the stock.

Branded footwear’s penetration in India is rising, according to Goldman Sachs, which cited a drop in market share of the unbranded footwear segment to 75% from 85% earlier.

“Global trends suggest that as the footwear market grows, 40% to 60% of the market share gets consolidated with the top 15 brands,” Goldman Sachs wrote in its note. Therefore, the brokerage sees organised multi-brand retailers to be the best positioned to capture the rising brand penetration.

Why Metro Brands?

Goldman Sachs believes that Metro Brands will start scaling up Fila in the financial year 2025 through its existing Metro and Mochi store network, new Fila exclusive brand outlets and online channels.

The brokerage sees Metro Brands’ Sports & Athleisure contributing to nearly 17% of its revenue by financial year 2035.

“We are confident of Fila scale up given Metro Brands’ past execution track record with third party premium brand Crocs with store count rising from 12 to 200 in eight years, and expertise in operating in premium segments,” the note said.

Metro Brands is better positioned with regards to key structural trends like premiumisation and rising sports & athleisure penetration, according to Goldman Sachs.

Why ‘Neutral’ On Bata?

Bata’s new initiatives towards portfolio premiumisation and increase in marketing spending has not managed to revive growth yet, according to Goldman Sachs. The company’s product portfolio is relatively more skewed towards mass and economy segments, which structurally have lower growth potential compared to the overall footwear market.

“We believe Bata has been unable to premiumise its product portfolio as fast as Metro Brands due to weaker merchandising and a perception that the brand is not contemporary and just a maker of school shoes,” the brokerage said.

Shares of Metro Brands are trading 5% higher at ₹1,186.9, while those of Bata are trading 1.2% higher at ₹1,396.6.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

JPMorgan sees “froth” in US stocks, while Goldman says rally justified

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Are US stocks forming a bubble? It depends on who you ask.

To JPMorgan Chase & Co.’s chief market strategist Marko Kolanovic, the dramatic rally in US equities and Bitcoin’s quick surge above the $60,000 mark signal yes. He sees those advances as indicative of accumulating froth in the market — conditions that typically precede a bubble when asset prices rise at an unsustainable pace.

He joins in a chorus of rapidly piling up warnings from Wall Street that are hearkening back to the dot-com boom of the late-1990s, or the post-pandemic mania of 2021, when stock prices quickly ballooned and then burst.

Meanwhile, David Kostin at Goldman Sachs Group Inc. is among those who thinks the risk-on mood is warranted, arguing Big Tech’s lofty valuations are supported by fundamentals.

As the S&P 500 Index keeps hitting new highs — driven chiefly by big gains in American technology giants — it’s drawn the ire of critics who think the bullish run can’t last, and excitement from optimists who think there’s room for more gains.

Kolanovic is a key figure in the former group. The market is pushing ahead “with volatility low and froth building,” he wrote Monday in a note to clients.

“Equities have moved up this year, even as bond yields rose and rate cut expectations unwound,” he said. “Investors may be assuming that the increase in yields is reflective of economic acceleration, but earnings projections for 2024 are coming down and the market appears too complacent on the cycle.”

In contrast, Goldman’s Kostin said this time is different from other periods in history when stock prices have moved abruptly, typically beyond their value. Unlike prior such instances, the breadth of “extreme valuations” is far more contained this time, with the number of stocks trading at those multiples down sharply from the peak in 2021.

Moreover, in contrast to the “growth at any cost” mentality in 2021, “investors are mostly paying high valuations for the largest growth stocks in the index,” he wrote in a note Friday. “We believe the valuation of the Magnificent 7 is currently supported by their fundamentals.”

The group, particularly Nvidia Corp., Meta Platforms Inc. and Microsoft Corp., have raced ahead this year and pulled major stock indexes along with them. The S&P 500 has logged 15 closing records in 2024, posting four-straight months of gains.

So far, financial results are justifying the moves. Earnings per share for the cohort rose a combined 59% in the fourth quarter from a year earlier, compared with expectations of 47%, data compiled by Bloomberg Intelligence show.

But to Kolanovic, the environment is a head-scratcher, reflecting investor complacency and an underappreciation of risk.

The continued climb in stocks “may keep monetary policy higher for longer, as premature rate cutting risks further inflating asset prices or causing another leg up in inflation,” he said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Apple cut from Goldman’s conviction list as shares underperform

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Apple Inc. was removed from Goldman Sachs Group Inc.’s list of top buys after underperformance in its stock amid concerns over weak demand for its key products.

The iPhone maker had ranked in the 20-25 member “Directors’ Cut” version of Goldman’s conviction list since it was unveiled last June. Its share price is little changed in that span while the S&P 500 Index has jumped almost 22%. Apple dropped 0.6% Friday after its removal from the list.

Apple has lagged its Magnificent 7 peers even more dramatically, trailing all but Tesla Inc. Concerns of a prolonged iPhone sales slump have been the main culprit, particularly as China’s economic troubles continue.

Goldman said its Directors’ Cut list is reviewed monthly, with stocks being removed if they are “no longer a top investment idea”. Analyst Michael Ng maintains a buy rating on Apple on the belief that “the market’s focus on slower product revenue growth masks the strength of the Apple ecosystem and associated revenue durability & visibility,” the broker’s report said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why Goldman Sachs is turning wary of Indian bank stocks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global brokerage firm Goldman Sachs has downgraded ratings on banking majors State Bank of India (SBI), ICICI Bank and Yes Bank, saying that the headwinds are increasing for the Indian financial services sector. The firm has downgraded SBI to ‘Neutral’ with a target price of ₹741 per share.

“At the current valuation of 1.2x on a 1-year fwd P/B basis (standalone) and the dynamics around profitability, we believe the stock is trading at a fair valuation. Based on our valuation methodology, we raise our 12-month target price to ₹741 per share,” the brokerage said.

Additionally, ICICI Bank has also been downgraded to ‘Neutral’ with a target price set at ₹1,068 per share.

ICICI Bank, which has seen success in boosting its return on assets (ROAs) post-Covid, is expected to face profitability moderation due to the consolidation in consumer lending, the brokerage said.

Meanwhile, Yes Bank has been marked as ‘Sell’ with a target price of ₹16 per share.

Despite recent stock rallies, Goldman Sachs believes the bank’s fundamentals are under pressure due to a subdued margin profile and credit cost challenges.

In contrast, the brokerage firm has upgraded Bajaj Finance to ‘Neutral’ from ‘Sell’ with a target price of ₹6,815 per share.

HDFC Bank retains its ‘Buy’ rating with a target price of ₹1,915 per share.

Goldman Sachs analysts indicate that the financial sector might be entering a challenging phase, as the “Goldilocks period” (strong growth and strong or visible profitability) is likely over in the near term.

Structural challenges in the funding environment are contributing to rising pressure on the cost of funds, posing concerns for banks.

The report emphasised growing worries about increasing consumer leverage, potentially leading to challenges in asset quality.

Despite these challenges, the report noted that sector valuations have remained at a comfortable level.

However, the changing economic conditions have prompted Goldman Sachs to revise its stance on various banking entities.

Rahul Jain, Head of India Research at Goldman Sachs, further expressed concerns about the surge in unsecured loans within the banking sector.

Despite this, he noted that investors seem to favour the liquidity position of Public Sector Undertaking (PSU) banks over private banks.

Jain suggested that NBFCs focusing on commercial retail may present more attractive opportunities compared to those linked to consumer lending.

The emerging challenges in the financial sector stem from structural issues in funding, further exacerbated by the Reserve Bank of India’s (RBI’s) recent decision to increase risk weights on unsecured loans, including credit card dues.

In an earlier conversation with CNBC-TV18, Santanu Chakrabarti, an analyst at BNP Paribas, expressed concern over an impending margin squeeze in the banking industry.

He anticipated a potentially challenging scenario until September 2024.

Chakrabarti identified IndusInd Bank and AU Small Finance Bank as promising options for investors looking to capitalise on opportunities during this corrective phase.

ALSO READ | The curious case of Bank of Baroda’s contracting NIMs: A look at factors driving underperformance

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman Sachs lifts S&P 500 target to 5,200 on profit expansion

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Just months after setting a 2024 target for the S&P 500 Index, Goldman Sachs Group Inc. strategists have boosted their forecast for a second time as the stock market eclipsed the significant 5,000 milestone this month.

“Increased profit estimates are the driver of the revision,” a team led by David Kostin wrote in a note to clients dated Friday.

Kostin now sees the S&P 500 rising to 5,200 by the end of this year, raising his forecast by about 2% from the 5,100 level he predicted in mid-December. The new target implies a 3.9% jump from Friday’s close.

In November, he initially projected the S&P 500 would hit 4,700 by the end of this year.

Goldman’s 5,200 price target for the S&P 500 in 2024 is now among the highest on Wall Street, joining the ranks of Wall Street bulls including Tom Lee of Fundstrat Global Advisors and Oppenheimer Asset Management chief strategist John Stoltzfus, who both hold a similar year-end outlook.

The firm’s strategists upgraded their earnings-per-share forecast for the year to $241 and $256 in 2025, from $237 and $250 previously. That reflects their expectation for “stronger economic growth and higher profits” for the information technology and communication-services sectors, which contain five of the so-called Magnificent Seven stocks including Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc. and Meta Platforms Inc. The new estimate sits above the median top-down strategist forecast of $235.

The firm’s strategists expect valuation multiples for both the S&P 500 and its equal-weight brethren to remain close to current levels — at 20 and 16 times earnings, respectively, “making earnings growth the primary driver of remaining upside this year.”

The S&P 500 Index has climbed 4.9% this year, fueled by expectations of a dovish policy shift by the Federal Reserve and as artificial intelligence optimism lifted technology stocks. Profits in the 500-member gauge are expected to grow 8.8% in 2024 from a year ago, data compiled by Bloomberg Intelligence show.

The S&P 500 topped its all-time peak for the first time in two years in January, while the Nasdaq 100 hit its first record in a similar span back in December after the Fed signaled that its aggressive rate hikes to contain inflation are likely over and cuts are on the table for 2024.

Wall Street peers like those at Bank of America Corp. have signaled their willingness to potentially raise their year-end targets as well on the idea that investors aren’t optimistic enough. The median S&P 500 target by nearly a dozen equity strategists tracked by Bloomberg currently sits at 4,950 through mid January.

“The biggest risk to the S&P 500 in the near term is upside,” Savita Subramanian of Bank of America said on Bloomberg TV earlier this month. “Our target of 5,000 is probably too low in the near term.”

Even Morgan Stanley’s Michael Wilson — among the most prominent bearish voices on Wall Street — is now expecting gains in the US equity market to broaden into less loved corners than the big tech companies that have dominated the rally so far. His 2024 target remains 4,500, implying a roughly 10% drop from Friday’s close.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman Sachs, BofA raise Paytm target price, Bernstein, Citi, Axis Capital remain upbeat

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global brokerage firms Bank of America (BofA) and Goldman Sachs have raised target price on Paytm stock, after the company’s December quarter results. This came after CLSA upgraded the stock to ‘buy’ and increased the target price to ₹960 apiece.

Paytm reported its December quarter results after market hours on Friday, January 19, where its losses narrowed sequentially and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) also improved on a quarter-on-quarter basis.

The company’s profit after tax (PAT) improved by ₹170 crore year-on-year (YoY) to ₹222 crore.

BofA, revised its target price on Paytm to ₹950, from ₹905 apiece earlier, as the company’s 3Q earnings beat its consensus estimates. “We remain confident that Paytm’s momentum will be strong both in the personal and merchant loan segment,” it said.

The brokerage firm reiterated a ‘buy’ rating on the Paytm stock.

“We are optimistic on fundamentals and see room for Paytm to scale up aggressively without taking any balance sheet risks. Paytm has key differentiating factors versus peers, and overall competition remains benign. In our view, the lending business provides an upside optionality to Paytm giving Paytm room to scale up subject to execution,” it added.

Goldman Sach has also revised the target price to ₹860, as it said that Paytm’s broad-based growth across all segments was driven by seasonality.

“We have been encouraged by the stable credit metrics across Paytm’s different segments which in our view should position the company well when macro improves,” it added.

Domestic brokerage firm Dolat Capital remained upbeat on the fintech giant’s stock, with a buy rating and target price at ₹1,320 apiece.

“Continued strength across segments, early success in high ticket size loan distribution, and healthy operational performance reiterates our positive stance,” it said.

It noted that Paytm has stated the use of AI to build products, as well as internal efficiency leading to moderate headcount and better operational performance in the near term.

“We factor in continued optimism in Merchant business, higher ticket size focus in the loan distribution business and steady consumer business,” it added.

Bernstein maintained an ‘outperform’ rating with a target price of ₹950, as it said that the asset quality of Paytm’s lending portfolio remained unchanged despite the slowdown in disbursal which is a major positive.

Citi said that overall, strong headline growth in revenues and contribution profits highlights the resilience of Paytm’s payments-driven cross-sell/up-sell opportunities in fintech.

Axis Capital maintained an ‘add’ rating with a price target of ₹860 apiece.

While Macquarie, in its note, stated, “Paytm reported EBITDA (excluding ESOP costs) of ₹219.4 crore, up 43% QoQ, surpassing our estimate of ₹60.6 crore, driven by increased revenues (12% above expectations) from financial services (rapid expansion of high-ticket personal loans), payments, and commerce revenues (boosted by the festive season). This was partially mitigated by higher processing charges and other expenses.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman Sachs downgrades cement; overweight on these sectors

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Goldman Sachs has downgraded the cement sector to neutral from from overweight. Sunil Koul, Equity Strategist-APAC said the global investment bank expects muted sales volumes for the upcoming quarters, and limited upside potential in cement stocks after the near 15% rally recently.

However, Goldman likes the sector for the longer-term, as “it plays into both the real estate recovery cycle as well as the infrastructure.”

Koul remains overweight on the industrials sector. While some spaces within industrials such as infrastructure could face muted order book because of the election cycle, there are micro-stories benefiting other segments and individual stocks within the space such as logistics, electronics manufacturing (EMS), etc. that will benefit from the production linked incentive scheme or shift from unorganised to organised sector. Staying invested in the sector with a bottom-up approach makes sense, he notes.

Also Read | Indian rupee and bond markets face uncertainties amid global shifts

Koul is overweight on India, as it is structurally and fundamentally strong even though significant macro shifts over the last couple of months led to a slow start to the year. He expects foreign money to continue flowing into the market, especially post-elections.

He explained that while Indian equities saw a 20% return last year, 18% of this was led by earnings growth. So there was little change in market multiples. This suggests that the rally was fundamentally driven.

This year, Goldman predicts that the Nifty 50 could reach 23,500, a 9% increase from current levels, based on an expected 15% growth in earnings, and factoring in potential derating or compression in market multiples.

Also Read | World Economic Forum:  How India can seize its moment to become the world’s third largest economy

Koul expects large-cap stocks to outperform small-caps and advises picking large-caps with solid fundamentals that may have lagged behind the broader market.

Apart from Industrials, Goldman Sachs is overweight on banks, autos, and utilities. Koul explained banks were a laggard last year and have the potential to do well this year.

Also Read | Taher Badshah says rewards outweigh risks in first half of 2024, sees potential in these sectors

For more, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman Sachs downgrades SJVN from Buy to Sell, targets ₹65 on overvaluation risks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Goldman Sachs has given hydroelectric power producer SJVN a double downgrade to ‘sell’ from ‘buy’ with a target price of ₹65.

A report by the brokerage firm says that the stock has risen 110% since its initiation in July 2023 and now the valuation risk-reward has turned unfavorable trading above the bull case scenario.

Also Read | Tata Power Renewable Energy wins 200-MW project in collaboration with SJVN

Additionally, Goldman believes that the Street is not yet pricing in the delays in commissioning of Buxar and Arun-III which will further dampen the earnings going forward. So, there is an earnings risk as well going forward for SJVN.

Also, while the Renewable Energy Implementation Agency (REIA) can add at least 3-10% to the target price, that’s also expected to have a negative impact on the balance sheet.

SJVN, a joint venture between the central and Himachal Pradesh state governments, has developed projects in regions like Himachal Pradesh and Uttarakhand as well as in neighbouring countries such as Nepal and Bhutan.

On November 9, SJVN reported a 1.3% year-on-year (YoY) decline in net profit to ₹439.6 crore for the second quarter versus a net profit of ₹445.4 crore last year.

For more, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman Sachs faces rocky exit from Apple credit card partnership

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Four years after Goldman Sachs introduced a credit card with Apple, the Wall Street giant faces a costly exit from a partnership that is seen by other lenders as too risky and unprofitable.

In searching for a buyer for its share of the partnership, Goldman will face pressure from bidders to reduce the value of its stake in order to make the price more attractive, according to two sources familiar with the matter who declined to be identified discussing potential talks.

Goldman does not break out how much its stake is worth.

The expected unwinding of the Apple-Goldman partnership is another blow for CEO David Solomon’s consumer strategy, which aimed to broaden the bank’s revenue beyond its traditional mainstays of trading and investment banking.

The potential writedown on the Apple card would be the latest in a string of losses from Goldman’s ill-fated foray into consumer banking, analysts said. Goldman does not break out the financial details of the card business in its results.

Goldman Sachs declined to comment.

Prospective bidders will likely push Apple to change the terms of the deal, the two sources said.

They will likely seek access to Apple’s proprietary credit card data, two other sources familiar with the business, said. Apple cardholders’ data is not sold to third parties for marketing or advertising, according to its website.

Credit card issuers such as Synchrony Financial, Citigroup and Capital One would be logical partners to take on the venture if terms are changed, according to the two sources and another source familiar with the situation.

Synchrony declined to comment. Separately, its CEO Brian Doubles said at a conference this month that “you’ve got to have a really good risk-return equation” for card deals.

Citigroup declined to comment. Capital One did not respond to Reuters requests for comment.

Apple recently sent a proposal that would enable Goldman to exit the contract in the next 12 to 15 months, The Wall Street Journal reported last month, citing people briefed on the matter.

Apple said it was focused on providing an “incredible experience” for customers, but declined to comment on the Goldman deal talks or terms.

‘STRATEGIC ALTERNATIVES’

After scaling back its retail ambitions last year, Solomon announced in February that Goldman was looking for “strategic alternatives” for its consumer unit.

The bank began talks with Apple under former Goldman CEO Lloyd Blankfein, who left in 2018, to create a credit card that would tap into the tech giant’s enormous customer base. Stephen Scherr, who led Goldman’s consumer division and later became its finance chief, was among its lead negotiators.

Solomon took the helm in late 2018 and the Apple card was introduced almost a year later. By 2022, the parties had renegotiated a deal that would last until the end of the decade, according to a person familiar with the situation.

Solomon told analysts in October that the bank was trying to get rid of the “drag” on earnings from its credit card business, which also includes a partnership with General Motors.

“Our partnerships with Apple and GM are long-term contracts,” Solomon said at the time. “And we don’t have the unilateral right to exit those partnerships.”

Analysts interpreted his comments as a signal the card operations were losing money.

When Apple first shopped the deal with potential partners, other banks including JPMorgan Chase passed because their potential cut of profits was too small, according to one of the sources familiar with the matter and a separate source who was also aware of Apple’s original proposal, who declined to be identified discussing private negotiations.

JPMorgan declined to comment.

New credit card businesses typically lose money in their early years, in part because regulations require banks to set aside about 7% of projected sales to cover expected losses, said Warren Kornfeld, senior vice president at Moody’s Investors Service.

Goldman was responsible for setting aside the provisions for credit losses instead of sharing them with Apple, according to the two sources familiar with the business.

The Apple card also posed an underwriting challenge. Goldman’s clients are typically wealthy individuals, and it had little experience making loans to less-affluent customers, according to analysts. As the two companies sought to boost revenue, they granted cards to customers with lower credit scores, according to one of the sources familiar with the situation.

As Goldman set aside more money for bad loans, the paper losses for its consumer business mounted, according to earnings filings.

The companies also tried to tempt new customers with the promise of “no annual fees, foreign transaction fees, or late fees,” Apple said on its website.

They also introduced high-yield savings accounts for card holders in April, enabling Goldman to gather $10 billion of deposits by August, Apple said at the time.

Actual loan losses would eventually be shared among the two partners, one of the sources familiar with the business said. The business costs were also divided, with Apple paying for marketing while and Goldman handled customer service, the person said.

“Goldman had no meaningful presence in the credit card business,” said Mike Taiano, vice president at Moody’s. “This was a big deal…they wanted to break into the card business, so they were probably willing to take less favorable economics.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow