Goldman Sachs nears the end of its years-long consumer headache after clinching Apple Card sale to JPMorgan

Goldman Sachs (GS) has reached an agreement to move its Apple Card business to Chase (JPM) in a deal that brings the company one step closer to ending its years-long foray deeper into the consumer banking business that became a headache for the firm.

“This transaction substantially completes the narrowing of our focus in our consumer business,” Goldman Sachs CEO David Solomon said Wednesday in a press release statement.

The deal still requires regulatory approval and isn’t expected to be finalized for two years, but both banks will recognize the hand-off in their fourth quarter earnings that they will report next week.

Goldman said it anticipates the hand-off will mean a one-time boost in its earnings per share of $0.46.

As part of this hand-off, the bank expects its net revenue to decline by $2.26 billion related to markdowns on the outstanding credit card loan portfolio and contract terminations, which is offset by the release of $2.48 billion of loan loss reserves.

Wells Fargo analyst Mike Mayo said in a Thursday note to clients that the one-time gain is “optically good for what has been value destroying effort, in our view.” Losses from Goldman’s consumer lending experiments since 2020 have amounted to $7 billion on a pre-tax basis, according to RBC analyst Gerard Cassidy.

Before the announcement, analysts expected Goldman to report fourth quarter earnings of $11.50 per share, according to data compiled by Bloomberg.

Goldman and Apple (AAPL) launched the credit card partnership in 2019 as part of Goldman’s broader push into the consumer business.

Read more: Apple Card review: Ideal for Apple fans who want to save on tech purchases

Discussions at the storied Wall Street bank to retrench from its consumer banking push began internally as far back as early 2022, according to CEO Solomon, who told analysts that the bank’s decision to retreat the following January was because “we tried to do too much too quickly.”

The period, which came amid a multiyear drought in Goldman’s core dealmaking business, added even more pressure to Solomon, who faced more scrutiny than ever before.

“We had a lot of regulatory pressure,” Solomon said last month in an interview when asked about the decision to exit the partnership.

“A group of us in the senior leadership said, ‘This is not working. We can make it work, but it’s going to be very, very hard. But it’s small, and it’s distracting us from the things that can really create significant market cap and value.’ And so we made the tough decision to park it,” Solomon added.

For JPMorgan, the deal brings an estimated $20 billion in credit card balances, further locking in its dominance as a credit lending giant and offering the nation’s largest bank a new customer base to cross-sell.

The deal brings JPMorgan’s total US credit card loan portfolio to $255 billion, putting it just $1 billion ahead of rival card lender Capital One (COF), according to the company’s third quarter earnings reports.

The Wall Street Journal first reported details of the agreement and, citing sources, reported that Goldman is taking a more than $1 billion discount on the sale. The deal talk had dragged on for months due in part to the portfolio’s higher delinquency rates.

JPMorgan expects to set aside an additional $2.2 billion provision for future credit losses to account for the portfolio. Analysts projected ahead of the announcement that its fourth quarter credit provisions would amount to $3.1 billion.

“Apple is an iconic brand recognized globally for its innovation, design excellence, and commitment to delivering exceptional customer experiences,” Allison Beer, JPMorgan’s CEO of card and connected commerce, said in a press release statement.

“We share a commitment to supporting consumer financial health, and we’re proud to deepen our relationship by welcoming them as the newest partner,” Beer added.

Goldman’s core Wall Street businesses of dealmaking and trading have soared over the last year. Its stock was down slightly early Thursday, but has climbed over 60% in the last 12 months, outperforming all rival Wall Street banks with the exception of Citigroup (C).

David Hollerith covers the financial sector, ranging from the country’s biggest banks to regional lenders, private equity firms, and the cryptocurrency space.

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