NEW YORK–More Americans are starting to miss payments and default on their loans, and that is showing up in what one report called a “surprising place”: Goldman Sachs.
But there’s a reason, according to analysts.
Even though the nation’s largest banks have been enjoying repayment rates at near-record levels, and delinquencies have remained low among credit unions, Goldman's loss rate on credit card loans hit 2.93% in Q2, according to CNBC. That figure is the worst among big U.S. card issuers and "well above subprime lenders," according to a Sept. 6 note from JPMorgan quoted by CNBC.
“The profile of Goldman's card customers actually resembles that of issuers known for their subprime offerings,” CNBC reported. “More than a quarter of Goldman's card loans have gone to customers with FICO scores below 660…That could expose the bank to higher losses if the economy experiences a downturn, as is expected by many forecasters.”
Growing Too Fast?
Michael Taiano told the news outlet that some people have been losing their jobs at the same time inflation has hit a 40-year high, and that primarily affect the subprime cohort.
"With Goldman the question will be, were they growing too fast into a late-cycle period?" he observed.
CNBC noted that Goldman's credit card business, anchored by the Apple Card since 2019, has “arguably been the company's biggest success yet in terms of gaining retail lending scale. It's the largest contributor to the division's 14 million customers and $16 billion in loan balances, a figure that Goldman said would nearly double to $30 billion by 2024.”
But rising losses are cutting into the profit picture. Goldman's 2.93% net charge-off rate is double the 1.47% rate at JPMorgan's card business and higher than Bank of America's 1.60%, despite being a fraction of those issuers' size, CNBC said.
The ‘Big Reason’
“The biggest reason is because Goldman's customers have been with the bank for less than two years on average, according to people with knowledge of the business who weren't authorized to speak to the press,” CNBC added. “Charge-off rates tend to be highest during the first few years a user has a card; as Goldman's pool of customers ages and struggling users drop out, those losses should calm down, the people said.”
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