You hate to see it (or you absolutely love it)— but, Goldman Sachs, one of Wall Street’s finest, is getting ghosted by Apple over their credit card partnership, and it could cost the bank up to $4 billion. Lawd have mercay. This is the kind of breakup that leaves you wallowing in heartbreak while holding the bill at the end—and in Goldman’s case, that bill is massive. 

(Source: Giphy) 

In short, back in 2019, Goldman finally got the keys to the consumer finance kingdom when it partnered with Apple to launch the Apple Card. It was supposed to be a game-changer, a "groundbreaking" foray into consumer banking. Spoiler alert: It flopped… bigly. 

Instead, Apple Card became a financial albatross, dragging Goldman through a swamp of subprime borrowers and loan losses. Now, Apple’s dumping Goldman, potentially leaving the bank with up to $4 billion big ones—in breakup fees. 

(Source: CNBC) 

What’s bad about this, is that the move initially made some lick of sense for Goldman, especially as they had big dreams of becoming a “peoples” bank. Aka not the high-flying, Wolf-of-Wall-Street investment firm we all know, but a down to earth consumer-centric money machine (this was definitely a PR stretch in the first place, I must say). And what better way to do that than partner with Apple, the tech giant that can sell you a $1,000 phone every year like it’s a pack of gum?

(Source: Giphy) 

However, like mentioned above, the Apple Card didn’t exactly print money. The tech was glitchy, customer acquisition costs went way up, and—oh yeah—Goldman ended up lending to a bunch of subprime borrowers. That’s right, the same bank that advises billionaires and Fortune 500 companies was suddenly underwriting loans for people who probably shouldn’t have had a shiny new credit card in the first place (Apparently, Goldman learned absolutely NOTHIN’ from 2008). 

(Source: CNBC) 

This had the result being a money-losing mess that Goldman’s been trying to clean up ever since. And now, Apple’s not wasting any time looking for a new partner. 

Word on the street is that they’ve been chatting with several potential new card issuers, including Synchrony Financial, Capital One, and JPMorgan Chase. Whereas, as of right now, it looks like our boys at JP Morgan are the frontrunners.

(Source: FinExtra) 

 But, but, but… here’s the kicker: JP Morgan in all their savvy, slimy glory wants to buy the Apple Card portfolio at a discount due to the fact that loan losses and delinquencies tied to the card are higher than those of other major issuers (think, roughly $17 billion in outstanding balances). 

This is where the $4 billion number comes from as Mike Mayo, managing director and head of U.S. large cap bank research at Wells Fargo (lmao, of course he’s from Wells Fargo) says ”the price tag for Goldman’s exit could range anywhere from $500 million to $4 billion.” Which is not exactly pocket change, even for Goldman. 

(Source: Yahoo Finance) 

Additionally, while Goldman’s about to write a very big check to make this problem go away, this not only marks the end of the Apple Card for Goldman; but it marks the end of an entire era of misguided consumer banking ambitions. 

Goldman’s CEO, David Solomon, and former consumer banking chief Stephanie Cohen thought they could break into the world of everyday banking. Spoiler alert (again): they couldn’t. After years of trying to make this work, Goldman’s been quietly backing out of the consumer finance game. For instance, they even sold off most of its consumer banking unit earlier this year while looking to hand off its General Motors credit card to Barclays - where Solomon admitted during an earnings call that the whole thing was a “failed experiment” and that it’s time to move on.

(Source: Finimize) 

But, like, why did they even try in the first place? That’s a question a lot of people are still asking. Chris Kotowski from Oppenheimer & Co. didn’t hold back, calling Goldman’s move into consumer banking "totally misguided and wrongheaded." Shots fired. 

(Source: Giphy) 

In fact, to add more insult to injury, Goldman has already been nailed with an additional $4 billion in impairment charges and operating losses tied to its consumer business since 2020. So, yeah, this whole Apple Card breakup is just the cherry on top of a very expensive sundae. Meaning, for Goldman, the answer is clear: get back to what it does best—investment banking, corporate lending, and making rich people even richer (ohhh, and maybe stop taking as many DJ gigs? Looking at you, David Solomon). 

David "DJ-Sol" Solomon (Source: Financial News) 

In the end, while hindsight is 20/20, it’s obvious that Goldman’s consumer banking experiment was doomed from the start, and the Apple Card breakup is just the (very expensive) nail in the coffin. It was an interesting and an absolute atrocious ride, no doubt, but it seems Goldman has learned the hard way that being a consumer bank isn’t as easy as it looks. 

So what’s the moral of the story this Sunday? Stay in your lane. If something is making you massive amounts of money (in this case, billions), don’t try to be cute and reinvent the wheel. Otherwise, you’ll be left holding the bag of something you never would have bargained for in the first place. 

(Source: Giphy) 

Oh and before I forget, when it comes to Apple: Well, they’ll be just fine. They always are. 

In the meantime, stay safe and stay frosty, friends! Until next time… 

  

Stocks.News holds positions in Apple as mentioned in the article.