Goldman Sachs continues to suffer losses from Apple Card

Goldman Sachs has reported more losses from its credit card operations, mostly attributable to Apple Card, and it's not clear when or how the bleeding will stop.

The investment bank has released its financial results for the second quarter of 2023, revealing ongoing challenges with the Apple Card and other portfolios. The document indicates a decrease in revenues for the bank's consumer business, Platform Solutions.

The division enables clients to integrate financial products and solutions into their offerings, using application programming interfaces (APIs). The Apple Card is a part of the Platform Solutions division, and it has been a significant factor in the financial performance of the segment.

Platform Solutions experienced a net loss of $667 million during the June quarter. Despite a rise in revenue within the division, there was a significant provision of $615 million for credit losses overall.

The $615 million provision includes amounts set aside for potential losses from their credit card business and point-of-sale loans. Goldman reduced the reserve after repaying a term deposit with the First Republic Bank.

The credit losses and operating expenses for Platform Solutions amounted to $544 million and $987 million, respectively, surpassing the quarterly revenue of $659 million.

To date, Goldman Sachs has lost over a billion dollars, mostly because of the Apple Card. Although CEO David Solomon called the partnership with Apple "the most successful credit launch ever," the bank is reportedly trying to end its deal.

The executives overseeing Goldman Sachs' assortment of businesses, referred to as Platform Solutions, revealed that their consumer division might achieve a break-even point in 2025. This target was originally set to be accomplished by the end of 2022.

21 Comments

eightzero 3148 comments · 14 Years

About 1 year ago

OK, I really don't get this. How does GS lose money on a credit card? Are they paying Apple a disproportionate amount of their rake from the cardholders? The article says "credit losses" so somehow more Apple Card holders are welching?

Or...it is possible GS thinks they just aren't making the billion they planned? Not sure that's a "loss."

mayfly 385 comments · 1 Year

eightzero said:

OK, I really don't get this. How does GS lose money on a credit card? Are they paying Apple a disproportionate amount of their rake from the cardholders? The article says "credit losses" so somehow more Apple Card holders are welching?

Or...it is possible GS thinks they just aren't making the billion they planned? Not sure that's a "loss."

Nope. They're losing plenty. Their customer acquisition cost is $350 per account. In addition, the Apple Card attracts a much more affluent demographic who pay their balances every month, depriving GS of interest charges. On top of that, there is the "buy now, pay later" program that allows customers to pay over 4 months without interest charges. That's how they're losing money. I wouldn't cry for GS, though. They made $10.9 billion in the second QUARTER of this year, even with the Apple Card losses.

mayfly said:

eightzero said:

OK, I really don't get this. How does GS lose money on a credit card? Are they paying Apple a disproportionate amount of their rake from the cardholders? The article says "credit losses" so somehow more Apple Card holders are welching?

Or...it is possible GS thinks they just aren't making the billion they planned? Not sure that's a "loss."

Nope. They're losing plenty. Their customer acquisition cost is $350 per account. In addition, the Apple Card attracts a much more affluent demographic who pay their balances every month, depriving GS of interest charges. On top of that, there is the "buy now, pay later" program that allows customers to pay over 4 months without interest charges. That's how they're losing money. I wouldn't cry for GS, though. They made $10.9 billion in the second QUARTER of this year, even with the Apple Card losses.

OK, so I understand: GS pays Apple $350 for each new account, and since those new accounts generally don't pay GS interest (affluent customers) GS can't make back the $350? And who gets the swipe fee from merchants (that I am always asked to reimburse the merchant for)? Is there no swipe fee charged to a merchant on the Apple Card? GS doesn't get a cut of each transaction?

I am sure GS has overhead on these operations. They have to pay staff to provide customer service; and other infrastructure like IT and the like. But a billion in losses to that? Really?

ApplePoor 306 comments · 5 Years

Somehow GS's lack of proper planning for any and all potential issues with the Apple Card is whose fault? To the best of my knowledge, GS set the credit limits. My credit limit was initially $2,500 and is now $32,500.

Their greed for the possible 20+ % financing interest blinded GS into giving too much credit to those who could least afford it. I am sure the GS lenders were licking their chops the last few months as the charges crowded $5,000 on my account, But these balances were paid in full on the 2nd of the month following.

So GS got no penalty interest and instead had negative cash flow for the cash discounts given on the purchases.

GS may have signed a multi year contract for this business and may find it difficult to extricate themselves.

Sympathy is between two other "S..." words in the dictionary.

rivertrip 145 comments · 15 Years

"The credit losses and operating expenses for Platform Solutions amounted to $544 million and $987 million, respectively, surpassing the quarterly revenue of $659 million."

One-third of operating expenses is due to credit losses? Accounting trickery?