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BANK OF NEW YORK MELLON CORPORATION (THE)

(BK)
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Exclusive: Goldman Sachs on course to launch cash management in mid-2020

01/11/2019 | 01:09am EDT
FILE PHOTO: The Goldman Sachs Headquarters building is pictured in the Manhattan borough of New York City

NEW YORK/HONG KONG (Reuters) - Goldman Sachs Group Inc is considering paying big multinational corporations more for their deposits than other banks as it paves the way for its entry into a mundane but prized business: managing cash.

The global investment banking powerhouse and fifth-largest U.S. bank, which is six months into building the required technology, aims to start the service in the first half of 2020, according to two people familiar with the plan. They agreed to discuss internal strategy on the condition they not be named.

The bank, which will earn fees and gain a captive client base for its foreign exchange business, could offer existing corporate clients more on deposits if they sign up for Goldman's cash management services, a person familiar with the plan told Reuters.

Long considered a low-margin, utility-like service, the wholesale payments and cash management business generated about $250 billion in global revenue in 2017 for big banks, according to management consulting firm Oliver Wyman.

The steady stream of income has grown more attractive to banks that have been shifting away from volatile areas such as trading and investment banking in the aftermath of the financial crisis a decade ago.

Citigroup Inc, JPMorgan Chase & Co, Bank of New York Mellon Corp, HSBC Holdings PLC, Standard Chartered PLC and Deutsche Bank currently dominate the market, handling corporations' payments and receivables across different regions.

As Goldman seeks to grow stable revenue by adding a cash management service for clients whom it already offers hedging and strategic advice, the investment bank further evolves to match rival universal banks' range of businesses.

Goldman Sachs is about half way to a goal management set in 2017 to generate $5 billion more in annual revenue by next year, largely by b
oosting reliable, fee-based businesses. (Graphic: https://tmsnrt.rs/2H81K9a

However, rivals privately scoff at the idea Goldman can gain significant market share in a business where contracts often last five years, clients tend to stick with their banks and a global network of banking licenses greases the wheels.

"The regulatory and operational costs of building a global cash management platform will be very steep and will take many years to achieve the scale that will justify the costs," said a senior commercial banker at a large European bank.

"Large multinational companies are consolidating the number of banks they deal with, and they don't tend to switch service providers frequently for workday functions like facilitating supplier payments and managing payrolls."

FIRST CLIENT

Nonetheless, Goldman believes it can make inroads.

Its investment bankers have heard corporate treasurers at big U.S. multinational corporations complain that other banks' systems are clunky and outdated, one person familiar with Goldman's plans said. Goldman will try to woo those accounts with a user-friendly interface and other improvements, and eventually hopes to be the third or fourth bank corporate clients use, in addition to other banks, for cash management.

Later this year, Goldman will become its own first client by moving its deposits from other banks onto its own cash management platform. Goldman stands to earn money from cash management in three ways: fees earned for processing funds, fees earned on exchanging a client's cash into other currencies during a transaction, and by using deposits as operational account balances, a cheaper alternative to wholesale funding.

Oliver Wyman predicts that wholesale payments and cash management revenue will grow 5 percent annually over the next five years. Growing volumes and rising interest rates will more than offset narrowing profit margins caused by increased competition, the consulting firm said.

Paying clients more for deposits and offering new technology is a strategy Goldman used when it launched Marcus, its online retail bank, in 2016.

It has paid off. Marcus had $30 billion of deposits in the United States and the United Kingdom and $4 billion in loans as of November, and is contributing about $200 million to Goldman's revenue, according to a November presentation.

In recent months, Goldman has advertised that it is hiring cash management compliance, technology, and legal professionals.

In one LinkedIn post seeking applications for lead data architect in the commercial banking engineering team, Goldman said it was looking for "innovative solutions to traditional banking activities" by combining the "heritage of a 148-year-old financial institution with the agility and entrepreneurial spirit of a tech start-up."

(Reporting by Elizabeth Dilts in New York and Sumeet Chatterjee in Hong Kong; Editing by Lauren Tara LaCapra and Tomasz Janowski)

By Elizabeth Dilts and Sumeet Chatterjee


ę Reuters 2019
Stocks mentioned in the article
ChangeLast1st jan.
BANK OF NEW YORK MELLON CORPORATION (THE) -0.44% 49.44 Delayed Quote.16.49%
BASE CO., LTD. 0.56% 5370 End-of-day quote.-12.68%
BASE, INC. -0.12% 1678 End-of-day quote.-14.04%
BYD COMPANY LIMITED 4.22% 232.4 End-of-day quote.14.37%
CITIGROUP INC. 0.75% 68.96 Delayed Quote.11.84%
DEUTSCHE BANK AG -0.87% 10.916 Delayed Quote.21.98%
HSBC HOLDINGS PLC -0.66% 423.75 Delayed Quote.11.85%
JPMORGAN CHASE & CO. -0.15% 150.21 Delayed Quote.18.38%
JUST GROUP PLC 0.36% 96.5 Delayed Quote.38.05%
LETS HOLDINGS GROUP CO., LTD. -1.79% 7.12 End-of-day quote.-8.48%
LOOK HOLDINGS INCORPORATED -3.23% 1497 End-of-day quote.56.43%
NEXT PLC 0.72% 7838 Delayed Quote.10.61%
ONE STOP SYSTEMS, INC. 1.60% 5.7 Delayed Quote.42.50%
STANDARD CHARTERED PLC -1.17% 466.1 Delayed Quote.0.04%
SWITCH, INC. 0.28% 21.76 Delayed Quote.32.93%
TEAM, INC. -3.66% 7.1 Delayed Quote.-34.86%
THE GOLDMAN SACHS GROUP, INC. 0.00% 357.53 Delayed Quote.35.58%
THE LEAD CO., INC. -8.47% 746 End-of-day quote.-11.19%
WILL GROUP, INC. -2.26% 993 End-of-day quote.-1.29%
WORKDAY INC. 0.86% 238.97 Delayed Quote.-0.27%
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Financials (USD)
Sales 2021 15 545 M - -
Net income 2021 3 487 M - -
Net Debt 2021 19 359 M - -
P/E ratio 2021 12,2x
Yield 2021 2,62%
Capitalization 43 284 M 43 284 M -
EV / Sales 2021 4,03x
EV / Sales 2022 3,91x
Nbr of Employees 48 000
Free-Float 62,9%
Chart BANK OF NEW YORK MELLON CORPORATION (THE)
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Bank of New York Mellon Corporation (The) Technical Analysis Chart | BK | US0640581007 | MarketScreener
Technical analysis trends BANK OF NEW YORK MELLON CORPORATION (THE)
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Income Statement Evolution
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Mean consensus OUTPERFORM
Number of Analysts 19
Last Close Price 49,44 $
Average target price 53,36 $
Spread / Average Target 7,93%
EPS Revisions
Managers and Directors
NameTitle
Thomas P. Gibbons Chief Executive Officer & Director
Emily H. Portney Chief Financial Officer
Joseph J. Echevarria Non-Executive Chairman
Bridget E. Engle Chief Operations & Technology Officer
James S. Wiener Chief Investment Officer & Senior Vice President
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