Goldman Sachs (NYSE: GS) Is Going to Work for You

It's true. Starting sometime next year, Goldman Sachs Group Inc. (NYSE: GS) - the poster child Wall Street investment bank of the 1% of the 1% of the superrich - is going to lend money to the remaining 99% of consumer borrowers.

Don't bother getting all suited up with hat in hand for a visit to a local branch of Goldman Sachs Bank USA (with its $73 billion in deposits) - there won't be one.

And don't even think about walking into the bank's office at 200 West Street in New York City - you won't get past security.

Goldman SachsHowever, with Goldman's new lending strategy, that walk-in access won't be required.

Goldman Sachs, you see, is getting into online banking.

This new venue of borrowing was known as P2P, or peer-to-peer lending - until big money transformed the P2P moniker into "power-to-profit."

And as we've been predicting for some time, P2P lending is creating a big moneymaking opportunity for you...

We Predicted This

I told you about P2P here back in April and explained how the original peer-to-peer model was being papered over by institutional money and banks getting into the game. I also showed you several great ways to profit.

Just to remind you, in the peer-to-peer arena, little folks make loans to other little folks through an intermediary site like LendingClub Corp. (NYSE: LC).

Borrowers seeking money to consolidate credit card debt, pay for a home renovation, or pay for school can be funded by creditors like you and me who have some cash to lend and want to collect a higher interest rate than we can get anywhere else.

Of course, as lenders, we'd face "repayment risk."

And that's where institutions stepped in - in a big, big way.

All Knowing... and All Powerful

If you or I fund a personal loan and we get stiffed, we're going to feel the sting. One way to not feel it so much is to have a lot of money to lend, to make lots of loans, and to be diversified across a wide spectrum of borrowers. That way, the high interest rates you earn as a lender - across a large loan book - will tend to offset a small-but-expected number of defaults... generating a still-high rate of return on your investment.

Goldman Sachs knows that. More importantly, Goldman knows how to assess risk - and is even creating newfangled models that are designed to calculate all the risks of this new lending market. It also has access to enough money to make billions of dollars in new consumer loans. And it has access to the technology needed to create lending platforms in cyberspace.

Add all this together and it's clear Goldman Sachs believes it has the muscle to become a serious player in the consumer lending business.

Make no mistake: This isn't a kinder, gentler Goldman Sachs bending over backward to help little borrowers.

Truth be told, if you want a truly accurate picture, consider this...

Matt Taibbi of Rolling Stone famously wrote about Goldman back in 2009: "The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

And it's clear that right here... Goldman Sachs smells money.

Lots of money.

The multi-tentacled bank recently hired Harit Talwar, the former chief marketing officer of Discover Financial Services (NYSE: DFS), and bestowed upon him the coveted Goldman Sachs' "partner" status. Talwar's mission: Build the investment bank's online lending business.

While the unit is expected to hire as many as 100 people and be up and running next year, there's no indication that Goldman will attach its storied-and-disparaged corporate name to the venture.

Getting Your Share

Goldman Sachs has never been a "retail" bank. And achieving meaningful success in a hard-scrabble business that makes personal loans at relatively high interest rates to consumers who are often consolidating numerous credit card bills will be a challenge. The fact that these customers - and the organizations that "protect" them - aren't afraid to poke their lenders in the eye will make this initiative an even greater challenge.

But thanks to Goldman's research, the company's leaders smell money. Of the $843 billion in outstanding consumer loans, Goldman Sachs says about $209 billion worth of personal loans - creating $4.6 billion in profits - is there for the taking by new online lenders.

And Goldman wants its piece.

Goldman Sachs Bank USA will more than likely make loans directly to borrowers through the venture's online platform. Eventually, the investment-banking firm plans to fund billions' worth of loans by selling certificates of deposit (CDs) to investors that are backed by Goldman's balance sheet and overall creditworthiness. Low-interest-rate CDs are a cheap means of financing loan growth and will have little impact on the Goldman Sachs' reserve requirements.

In short order, for fat fees, Goldman will securitize and structure its loans and sell the various "tranches" to institutional investors.

The magic elixir Goldman expects to mix into its new business is its technology and risk-management prowess. If Goldman can create risk measures - in other words, its own proprietary ratings metrics - to accurately assess risk profiles of the borrowers it lends to, it can manage every aspect of financing, lending, and collections, perhaps better than its competitors, and own a big chunk of the online lending business.

Why else venture down the path of the masses of unwashed borrowers?

Back in April when I wrote about P2P lending and how it's a better deal for borrowers on those sites than individual lenders, I recommended a couple of high-yielding alternative investments for would-be "mom and pop" lenders.

Both of these profit plays are "business development corporations," or BDCs, which I explained in my report to you. One was Apollo Investment Corp. (Nasdaq: AINV), with a 10.2% "pass-through yield."

And the other was Goldman Sachs BDC Inc. (NYSE: GSBD), with an 8% yield.

Why do I like the Goldman Sachs BDC? Because Goldman knows how to make money.

I have no doubt - whatsoever - that if Goldman brands its online-lending venture properly, and markets it extensively, it will add to Goldman's revenue, net profits, and probably stock price.

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And what will a successful Goldman venture do to existing online lending platforms like LendingClub?

Stay tuned: I'm closely watching all the players in the space - and am analyzing their businesses and their stocks - and will let you know which ones are worth your investment dollars and which ones you're better off borrowing from.

No, we're not talking about a "kinder, gentler" Goldman Sachs.

But we are talking about the investment bank so good at what it does that it all but prints profits.

And with this foray into online lending, it's going to print some profits for you.

Gold Bond: If bond prices fall, banks and financial institutions holding them will take a tumble, too. So, if you want exposure to falling European bond prices, here's what we recommend investing in for maximum profits with minimum effort...

About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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