Goldman Sachs is expected to incur a significant writedown on CEO David Solomon’s unsuccessful GreenSky deal

CNBC has learned that Goldman Sachs is anticipated to experience a substantial write-down due to its acquisition of fintech lender GreenSky in 2021, as the company has been attempting to divest the business.

Insiders familiar with the sale process reveal that the bids for the installment loan business are falling significantly short of Goldman’s expectations.

Goldman Sachs, under the leadership of CEO David Solomon, acquired Atlanta-based GreenSky for $2.24 billion as part of its strategy to expand into consumer finance.

However, a mere 18 months after the deal was announced in September 2021, Solomon decided to sell the business due to increasing losses and operational challenges within Goldman’s consumer division, prompting a strategic realignment.

In the initial round of bids, asset managers and lenders including KKR, Apollo Global Management, Sixth Street Partners, Warburg Pincus, and Synchrony Bank participated. The bidding process commenced in early June, as reported by anonymous sources familiar with the sale.

One of the bidders stated, “Everyone has been submitting low offers, but the Goldman team continues to defend and emphasize the value of the asset.”

According to insider sources, the bank is currently engaged in negotiations with a reduced number of bidders this week, aiming to increase the final price in the process.

According to knowledgeable sources, Goldman Sachs has been following a dual-track process, exploring offers for GreenSky’s loan origination business and its portfolio of existing loans independently, as well as considering offers for a combined deal.

Two bidders provided different estimates for the value of the origination platform, with one valuing it at approximately $300 million and the other perceiving it to be closer to $500 million.

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If a deal were to be concluded around those valuations, it would result in a significant markdown compared to Goldman’s initial acquisition cost. As a consequence, the company would be required to disclose a write-down in an upcoming quarter, impacting its financial performance.

Although the all-stock acquisition was initially announced with a valuation of $2.24 billion, it was actually valued at approximately $1.7 billion when the transaction concluded six months later, as per one of the individuals familiar with the matter.

KKR, Synchrony, and other bidders mentioned in the article declined to provide comments. Some of these bidders had been previously identified by Semafor.

During a conference with analysts on June 1, Goldman’s President John Waldron acknowledged the likelihood of potential impact on the bank’s financial results due to the GreenSky sale. Waldron mentioned that the transaction could result in the elimination of $500 million in goodwill associated with the acquisition of the lender, and the sale of loans might also trigger other one-time accounting charges.

The recent turbulence represents the latest consequences resulting from Solomon’s choice to exit a significant portion of the bank’s consumer initiatives. This decision followed his strong push to transform Goldman into a disruptive force in the fintech industry.

Goldman spokesperson Tony Fratto expressed satisfaction with the level of bidder participation, stating, “We are pleased with the engagement of the bidders. As we progress through the process, we will continue to gather more information.”

Source : cnbc.com

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