September 14, 2022-The most vulnerable American borrowers are starting to miss payments and default on their loans, which leads to a unique place. While competitors such as Bank of America enjoy repayment rates around record levels, Goldman’s loss rate on credit card loans reached 2.93% in the second quarter.
That’s the poorest among big U.S. card issuers and “well over subprime lenders,” according to a note from JPMorgan on September 9.
The profile of Goldman’s card clients matches that of issuers known for their subprime offerings. According to filings, more than a quarter of Goldman’s card loans have gone to consumers with FICO scores below 660. As many forecasters expect, that could expose the bank to higher losses if the economy undergoes a downturn.
“People lose their positions, and you had inflation at 40-year highs; that will impact the subprime cohort more because they are living paycheck to paycheck,” Michael Taiano, a senior executive at Fitch Ratings, said in an interview. “With Goldman, the query will be, were they growing too fast into a late-cycle period?”
The dynamic arrives at a sensitive term for CEO David Solomon. Under pressure to improve the bank’s stock price, Goldman’s money-losing consumer operations have drawn headlines and the ire of some investors and insiders. The investment bank began its foray into consumer finance in 2016 to diversify from its traditional strengths of Wall Street trading and advisory actions.
But the journey has been bumpy, characterized by leadership turnover and staff departures, missed product deadlines, confusion over branding, a regulatory probe, and mounting losses.
According to individuals who know the matter, Solomon will probably face questions from directors around the consumer business at a board meeting later this week. There is inner conflict about who Solomon has picked to lead critical groups, and insiders hope he puts more vital managers in place, the people stated. Some state that Solomon, who moonlights as a DJ on the international festival circuit, has been too extroverted, putting his brand forward of the banks.