Last week, Goldman Sachs decided to buy $50 billion of unwanted assets from ailing Deutsche Bank. The assets were focused primarily on emerging market debt as Deutsche Bank continues to clean its books. The bank has sold off billions of dollars of assets already.
Sources close to the deal stated that Goldman Sachs received a deep discount on the assets which practically forced them to take the deal despite limited growth potential. In fact, Goldman Sachs executives only believe they will make a minimal profit and thus looked at it as an opportunity to scale within that sector. The business also includes derivatives, which is of keen interest to Goldman.
Deutsche has said it sold packets of equity derivatives in three previous auctions. It is now trying to sell more complex equity derivatives, a process that will likely carry through 2021. Previously, Deutsche Bank agreed to transfer its prime broker business to BNP Paribas.
Profitable global banks are looking down the road in order to leverage their present scale to dominate the future changes in banking. Earlier in 2019 Santander, an international bank based in Spain, agreed to a $100 million partnership with IBM. However, financial institutions such as Goldman Sachs are still willing to look at developing its core businesses even if the profit margins are limited.
Scale still seems to have its strategic benefits if the price is right.