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Goldman Sachs: Your Online Bank?


Wall Street behemoth gets caught in the web.

Goldman Sachs (GS) may launch an Internet banking operation as part of an effort to broaden its sources of funds.

The deposits could be used to back new ventures, the Wall Street Journal reports.

Goldman Sachs converted to a bank holding company in September, allowing it to solicit deposits. That's the polar opposite of the once-mighty investment bank's image - but it underscores how Wall Street is changing in response to the credit crunch and crumbling global economy.

No name has been selected for the new Internet bank, but it's almost certain to offer typical savings products such as certificates of deposit. Goldman Sachs now has about $20 billion in deposits held by subsidiaries.

If Goldman Sachs launches the online bank, it will face stiff competition from traditional banks, including JP Morgan Chase (JPM), Wells Fargo (WFC) and Bank of America (BAC). It also would compete with ING Direct, a division of ING Groep NV (ING).

Goldman Sachs may acquire a regional bank with a large retail operation, but the company's decision to secure a New York state banking license suggests expanding into other states isn't a high priority.

Morgan Stanley (MS) has received a national charter, suggesting it's considering expanding outside New York and may acquire regional banks that overlap its existing base of brokerage and asset-management clients.

Goldman Sachs is also considering a plan to seek deposits through its extensive wealth-management operation and from large corporate clients. This more closely follows Goldman's image and long-term strategy than seeking small deposits from retail customers.

However, the future looks both uncertain and rocky. Analysts expect Goldman Sachs to report a net loss of about $2 billion when it reports fourth-quarter results later this month. If so, it would be the company's first quarterly loss since the overwhelming success of its IPO in 1999.

Goldman Sachs received $10 billion from the US Treasury earlier this year. The company's stock recently fetched $65, down 71.66% from its 52-week high of $229.35.

Goldman Sachs previously announced that it plans to cut about 10% of its staff, or about 3,200 workers, in response to declining revenue. So far, about 130,000 jobs in the financial industry have been eliminated since mid-2007. That's more than the cuts made after the Internet bubble burst in 2001.
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