Goldman to open private bank

Headquarters of Goldman Sachs in lower Manhattan June 22, 2012 in New York.

Jeff Horwich: Goldman Sachs released it's quarterly earnings this morning and unlike some other strong bank results last week -- JPMorgan, Wells Fargo -- Goldman's weren't pretty. Goldman's profit fell 12 percent mostly on losses from investments, including a big loss on a Chinese bank. In the face of this, Goldman is looking to try out something new. The simplest way to describe it is a private bank for rich people. 

For more on how that would work and whether it might help, I've enlisted our New York bureau chief Heidi Moore, who is here live. Hello, Heidi.

Heidi Moore: Hi, Jeff.

Horwich: So we're calling this thing a private bank for wealthy people, but what does that actually mean and how's it going to work?

Moore: Sure, well the wealthy people part you've got. The reason they call it a private bank is to give it a sense of exclusivity. So if you've seen James Bond movies or any decent thriller, you've heard about these Swiss bank accounts, right, where people hide their money. Those are private banks, and you will find them in Switzerland at banks like UBS or Credit Suisse, but you'll also find them all over the U.S. -- at Bank of America, the former Merrill Lynch, at U.S. Trust. And so Goldman wants to get into that business now. 

Horwich: To be clear, the business they are getting into is not ostensibly a place for you to hide your money, but to compare it with overseas, that makes sense. How rich do you have to be? I mean, can I walk in with $500,000 or would they say, sorry not rich enough?

Moore: Well, if you had the gall to walk into Goldman Sach with $500,000, you would be the poorest person in the building.

Horwich: How dare I? [laughs]

Moore: Exactly. No, they probably wouldn't open an account for you. As a matter of fact, they made a joke about how they are not there to give away toasters. So stay away hoi polloi. But generally, a lot of these accounts have $1,000,000 at the very, very minimum, and most of them -- $5 million and $8 million. And you have to picture the kinds of, this is family wealth, so these are families that usually have some kind of prosperous business, whether large or small, and a considerable amount of stable income. 

Horwich: Why would Goldman want or need to do something like this?

Moore: Well, there are reasons that they both want and need to do it. I mean one of the reasons that they need to do it is -- you saw their earnings -- it's very hard to make money in the stock markets and the bond markets right now, and their earnings on that are going lower. There's something called the Volcker Rule, which means the bank can't invest so much for itself anymore, not that its own investments have done very well, so they need another source of profit. And managing this wealth of money is a great source of profit because that money is very fat and stable it doesn't go anywhere and it earns lots of fees. And so it gives them a way to invest money, and then they can also lend money to corporations which also generates more fees.

Horwich: Heidi Moore, live from New York, thanks.

Moore: Thank you. 

 

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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