Talwar has big task as Goldman Sachs moves into online lending

Harit Talwar has a big job on his hands.

Hired as a partner last year by Goldman Sachs in New York, he is spearheading a move into online lending, which is part of a broad effort by the Wall Street investment bank to open up new sources of revenue.

The former president of the US credit-card business at Discover Financial Services has since hired senior executives from regulators and rivals — and through this month’s acquisition of a $16bn book of deposits from GE Capital, has given himself an advantage over non-bank rivals dependent on fickle wholesale markets for funding.

“That’s the ultimate, the lowest cost of capital imaginable,” said Jared Hecht, co-founder and chief executive of Fundera, a small-business lending portal. “Being dependent on one or two institutional investors can go south very quickly, depending on how the winds blow.”

Goldman is determined to make a success of its new venture lending to consumers and small businesses, which is known internally as Mosaic and is on course to launch by the end of the year. After all, other units are hardly firing on all cylinders. The core trading division has been sputtering for a while, slowed by tougher regulation and choppy markets. The investing and lending division, a ragbag of businesses involving Goldman placing bets with its own capital, had a particularly difficult time in the first quarter, as the bank posted its lowest return on equity of the past four years.

Analysts have questioned whether Goldman is doing enough to reinvent itself, noting that the stock price — hovering at about $165 on Monday — is exactly where it was 10 years ago.

When Dick Bove, a veteran analyst at Rafferty & Co, asked last week why Goldman was apparently baulking at “transformational change”, he drew a prickly response from Harvey Schwartz, chief financial officer.

“We’re [not] sitting here waiting for the world to do what it does,” Mr Schwartz said, on the bank’s earnings call. “If we felt there was a client segment or a transaction we could do that would benefit our shareholders and we could deliver to those clients, we would do it. We’re open-minded.”

Hence the move into online lending, seeking to match the explosive growth of companies such as Lending Club and Prosper. In a report last year, Goldman analysts said that $4.6bn of big-bank profits could be lost to the digital upstarts, which could capture up to 15 per cent of the $843bn worth of outstanding consumer loans within a few years.

For now, the online-lending industry as a whole is “somewhat sceptical” that a big bank such as Goldman can be as “nimble” as the leaders, said Brian Korn, a partner at law firm Manatt, Phelps & Phillips in New York.

But Mr Talwar has been busily filling out his bench. Key hires include Mitch Hochburg, a former official at the Washington-based Consumer Financial Protection Bureau, who arrived as chief compliance officer in January. Greg Berry, an ex-Visa and PayPal executive, came on board in November as chief architect, shortly after Darin Cline arrived after a two-year stint as senior vice-president of operations at San Francisco-based Lending Club.

Stephen Scherr, a 23-year Goldman veteran who was promoted to a new position of chief strategy officer two years ago, noted that ructions in credit markets since the turn of the year had increased pressure on many of the 400 or so online lenders in the US, forcing them to redouble efforts to secure stable funding.

But that only played to the advantage of Goldman, he said, which became America’s fourth-biggest bank holding company during the financial crisis by rolling its deposit-taking units into GS Bank.

“Our enthusiasm remains high given what we have learned over the course of building our business,” he said.