We are pleased to release our inaugural Lending Earnings Insights report. On a quarterly basis, following earnings announcements, we analyze lender performance with a focus on credit performance trends and forward-looking commentary. We analyze data across three main lender segments: (1) FinTechs & Non-Banks, (2) Large banks, and (3) Card Issuers. Below are some of the main themes that we explore in this tracker:
- Large banks continue to retrench. Wells Fargo’s loan portfolio is down $13 Bn YOY. Loss reserves are down at all major banks except at GS due to the ramp-up in their consumer lending portfolio. Goldman Sachs expects lending initiatives to add $2 Bn in revenue in the coming years. GS loan loss reserve increased 50% and GS had the highest improvement in ROE across its peer group.
- Credit re-normalization trend continues remains a recurring theme across all major lending groups. Overall, loss-rates on recent vintages are increasing versus prior recent vintages, although performance remains stronger than pre-crisis levels. Card issuers are increasing loan loss reserves at a higher rate than loan growth, indicating expectations of higher losses going forward. Discover and American Express increased loan loss provisions ~50% although loan growth is at 9% and 14% respectively.
- Consumer installment lenders do not anticipate an increase in loss rates, after having recalibrated loss expectations and increased reserves in 2016. LendingClub noted that projected investor returns are largely unchanged from prior quarter. OneMain had the smallest increase in loss reserves at 4%.
- Consumers now have access to greater supply of credit and credit demand continues to grow. Greater access to credit is driving credit performance re-normalization. Consumer average debt-to-incomes are below pre-crisis levels.
- Several lenders cited the shifting competitive landscape and the role of technology in driving innovation and risk management. Capital One, American Express, and JP Morgan are investing heavily in technology and partnering with FinTechs to develop competitive advantage. LendingClub introduced a next-generation credit model that no longer relies on FICO scores and utilizes machine learning.
- Where are we in the credit cycle? Several CEOs—including Citi, Capital One, JP Morgan, OnDeck—observe a healthy US consumer and macro backdrop.