CECL Overview, Square’s Bid To Be A Bank, Equifax Data Breach
By Vy Phan
September 10, 2017
Overall, we applaud the coming changes to US GAAP and expect investors to respond favorably. Here are a few takeaways to keep in mind:
- Organizations should be able to use similar methodologies for valuing securities at the financial reporting level as they are using for internal risk and portfolio management.
- Subjective forecasting inputs can have a substantial influence on the income statement and balance sheet.
- Changes in ECL could affect profitability, bond covenants, or even dividend payments.
- Investors can trace changes in underwriting standards because assets are required to be separated by vintage.
- ABS investors will see how public issues are valuing assets on their books with regards to expected losses.
- Organizations are expected have models that forecast future interest rates, prepayment curves, default curves.
- PeerIQ's loan-level credit-model enables banks to comply with managing their consumer credit risk.
- PeerIQ's credit model provides issuers, community banks and large banks with an institutional grade approach to forecast losses.
- Longer assets have higher burdens associated for holding them on the balance sheet.
- The probability of a credit loss typically increases with the term of the loan.
- Companies that intend to keep loans on their balance sheet may be more inclined to offer shorter term loans in order to reduce ECL allowances providing an opportunity to non-bank lenders who move loans off their balance sheet via securitization, whole loan sales, or marketplace lending (which would be accounted for as loans Held for Sale).
- Ram will speak on a panel at the Online Lending Policy Summit on September 25th in Washington, DC.
- Ram will speak on the “Trends in Online Consumer Lending: Less Tech, More Fin?” panel on Monday, September 18 at ABS East in Miami, FL.
- Ram will speak at the 1010Data Discovery Summit on October 5 in New York, discussing PeerIQ’s data partnership with 1010Data at 11:15-11:55AM.
PeerIQ in the News:
- OneMain Deal Analysis (PeerIQ), Rated: AAA (LendingTimes, 9/5/17)
- Marketplace Lending News Roundup – September 2 (LendAcademy, 9/2/17)
Industry Update:
- Square Makes Its Big Move on Banking (PMYNTS, 9/7/2017) Square applied for an industrial loan company charter, leading to debate over whether fintech companies should be allowed to use this structure over traditional bank charters.
- Jack Dorsey’s Square Makes a Move Into Banking (WSJ, 9/6/17) Square has applied to form a wholly owned bank in Utah to offer loans to small businesses.
- Ousted Lending Club chief boosts volumes at new venture (FT, 9/6/2017) Upgrade, reports increases in volume following their Series-A funding round.
- Goldman Sachs is Waiting by the Phone for Your Call (American Banker, 9/6/2017) Marcus, Goldman Sachs’ consumer loan platform for refinancing credit card debt attempts to reach millennials through customer service.
- Cat-Bond Investors Sizing Up Irma (AB Alert, 9/8/17) Holders of catastrophe bonds already are handicapping which issues would face the biggest losses in the event Hurricane Irma takes a heavy toll on Florida.
- Issuance Barrage Taking Shape (AB Alert, 9/8/17) The asset-backed bond pipeline is swelling again.
- Equifax’s Hacking Nightmare Gets Even Worse for Victims (Bloomberg, 9/8/17) An unprecedented data breach is causing identity theft concerns for millions of Americans.
- Criticism of Equifax data breach response mounts, shares tumble (Reuters, 9/8/17)
- Equifax Says It Won’t Bar Consumers From Joining Breach Related Lawsuits (Tech Crunch, 9/8/17)
Conferences:
- 2017 US Open Stats & Fun Facts (WalletHub, 8/28/17) The US Open generates over $290 MM+ in annual revenue and is the most watched sporting event (over all matches) on the planet.