2023 began well, with the IMF significantly increasing global growth projections. However, even as the economic outlooks improves, Goldman Sachs has become an outlier among investment banks due its high coverage ratio. In other words, Goldman is worried about its customers' ability to pay off debts and is thus financially covering loans at a higher rate than other banks. At present, Goldman's loan portfolio is predicting losses or defaults on almost 14% of its value, more than double all peer investment banks.
Perhaps Goldman is more bearish than its competitors, but the fact that not one other major bank has such a pronounced ratio suggests that Goldman may be less selective in who it is loaning to. Some have blamed CEO David Solomon, who has led two reorganizations and in 2020 moved consumer lending to Goldman's "Platform Solutions", which has already lost $4 billion since then, and this in spite of a $2 billion acquisition of GreenSky in 2021.
CFO Denis Coleman defended Goldman by arguing that new accounting rules have forced the bank to front-load the cost of all loans, and that a new loan book means the company is yet to get to differentiate between customers. However, even Goldman seems to be admitting something is wrong, and their subsidiary Marcus has stopped issuing loans altogether.
Source: The Economist (Paywall)
Camillo Padulli, a sophomore at Yale, is a 2023 Collegiate Associate at the Manhattan Institute
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