Greetings,
The US economy added 134k jobs in September and the unemployment rate dropped to a low of 3.7% – a level not seeing since the Beatles broke up in 1970. Wage growth came in strong at 2.8%, and raises the specter of inflation down the road.
Fed Chairman Jerome Powell noted the “rise in wages is broadly consistent with observed rates of price inflation and labor productivity growth” and therefore does not point to an overheating labor market.” The statement is at odds with other Fed data and broadly accepted research which shows that productivity growth remains near historic lows and that “most of the economic growth has been driven by increases in labor inputs and not by increases in labor productivity”.
Consumer credit continues to transition to the capital markets. This week, Morgan Stanley Investment Management launched a ‘40-Act fund dedicated to the alternative lending space. The AIP Alternative Lending Fund is available to both accredited and institutional investors, providing broad exposure to the asset class via loans underwritten by multiple alternative lending platforms. The launch marks an important milestone for the industry as Morgan Stanley is the first large, global asset manager to provide access to the asset class to a broad investor base.
Point-of-Sale lending continues to grow, with Square now providing instalment loans of up to $10,000 to shoppers who purchase big-ticket items from Square’s merchants. Borrowers can repay in fixed monthly payments over a period of 3, 6, and 12 months with interest rates ranging from0% to 24%. The move puts Square in direct competition with other POS lending services – Affirm, Klarna, Greensky and more.
In FinTech financing news, UK P2P lender Funding Circle raised 300 Mn pounds. Funding Circle with a market cap of 1.2 Bn pounds, unfortunately, continued a disappointing trend of post IPO price moves for FinTech lenders. Funding Circle closed virtually unchanged on its first day of trading, but is since down by ~22%, partially driven by the downdraft in public equities this past week.
In other FinTech financing news, Samoyed, a Chinese FinTech company that provides short-term credit, has filed for an US IPO. Samoyed follows closely on the heels of its peer X Financial who also just went public. Petal, a company that provides credit cards to underbanked individuals, has raised $34 Mn and plans to expand its credit card offering. EasyKnock, a residential sale-and-lease-back platform, has raised $3.5 Mn in seed financing and $100 Mn in debt financing from Montage Ventures among others, to increase real estate closings.
In regulatory news, the FDIC has received 21 banking applications this year, over twice the number for last year. The FDIC however has approved only 4 of these applications to date.
Launch of TransUnion’s Startup Credit Kit
TransUnion has launched Startup Credit Kit, an innovative product suite that allows FinTech companies to explore how consumer credit data can help their business models. Startup Credit Kit, which includes PeerIQ’s Credit Insights tool allows FinTech’s to analyze market trends and historical performance for consumer credit asset classes, and combines credit bureau data with alternative data sources to improve risk and underwriting decisions.
Reach out to PeerIQ or your TransUnion representative to learn more.
PeerIQ’s Learning of the Week
This week we look at the performance of LendingClub’s 36-month loans. Over the life of the loans, borrowers with verified income have 140 bps higher losses. This is due to a “selection effect” – namely, LendingClub applies an extra layer of income verification high credit risk borrowers.
As seen in the tables below from the PeerIQ platform, the weighted average credit score of unverified borrowers is 15 pts higher than that of verified borrowers, which results in a 1.87% lower WAC for the unverified borrower cohort.
Source: PeerIQ Analytics Platform
Source: PeerIQ Analytics Platform
PeerIQ’s 3rd Quarter Securitization Tracker
This week we will release our 3rd quarter Securitization Tracker. Below are some of the highlights from this edition:
Near term economic growth is solid, and the US consumer is healthy. Potential for policy errors around raising interest rates, a slowdown in growth due to yield curve inversion, tax cuts expiring, and trade barriers could derail economic growth beyond 2020.
Eight marketplace lending securitizations priced this quarter totaling $3.5 Bn, the fifth-highest level of quarterly issuance, representing 35% growth YoY. To date, cumulative issuance equals $41.9 Bn across 134 deals.
Spreads tightened, and yields fell on new issuance, a reversal from last quarter. Weighted average all-in yields on consumer deals decreased from 3.72% to 3.70% QoQ, and on student deals from 4.5% to 3.5% QoQ.
Spreads are near all-time tight levels on student loan ABS. New issue spreads on student deals were tighter across the stack with all-in spreads tightening to near all-time lows of 54 bps.
New issue spreads in the Consumer MPL space were tighter on the seniors and wider on the juniors. The spreads on As were tighter by 14 bps and those on Ds were wider by 15 bps on average. Weighted average all-in spreads on consumer deals tightened to an all-time low of 95 bps from 109 bps QoQ.
All deals issued this quarter were rated. DBRS continues to lead the rating agency league table, while Kroll dominates the unsecured consumer sub-segment and we continue to see increased engagement from all the ratings agencies.
Ratings agencies continue to upgrade tranches So far, ratings agencies have upgraded 52 consumer MPL tranches and 67 student MPL tranches that are outstanding. CE levels have deteriorated across 8 SME, 4 consumer, and 2 student tranches.
Citigroup, Deutsche Bank, and Credit Suisse continue to top the issuance league tables with 57% of MPL ABS transaction volume. Citi and CS are increasing their activity in the FinTech space, with CS also offering risk retention solutions on securitizations.
PeerIQ’s recently launched ABS Investor Portal allows users to analyze and benchmark the loan-level collateral of major ABS issuers, and perform Stress Test scenarios, such as the 2008 global financial crisis, on each originator and project cash flows. Reach out to learn more!
Conferences:
- PeerIQ is attending the Online Lending Policy Institute conference on Oct 9th. Register athttps://www.onlinelendingpolicysummit.com/product-category/tickets/ and use coupon code PeerIQ33 for an exclusive 33% discount.
- PeerIQ’s CEO, Ram Ahluwalia, will speak on The CEO’s Roundtable: Expanding Your Business Model panel at 10 am on Friday, November 2nd 2018 at the Investor’s Conference on Online Lending in New York.
Industry Update:
- S. Payrolls and Wages Cool While Jobless Rate Hits 48-Year Low (Bloomberg, 10/5/18) The US economy added 134k jobs in September and the unemployment rate dropped to a 48-year low of 3.7% and the economy is now estimated to be at full-employment.
- Powell Sees Muted Inflation Risk in ‘Extraordinary’ Economy (Bloomberg, 10/2/18) Soaring GDP growth with inflation reaching the Fed’s target is keeping the Fed on track to raise rates.
- Floodgates open? De novo applications surge at FDIC (American Banker, 10/3/18) An encouraging regulatory environment for startup banks has seen the FDIC receive 21 banking applications this year, over twice the number for last year.
- Square takes on Affirm with point-of-sale installment loans (FastCompany, 10/4/18) Point-of-Sale lending continues to grow, with Square now providing instalment loans of up to $10,000 to shoppers who purchase big-ticket items from Square’s merchants.
- Funding Circle Goes Public on the London Stock Exchange (LendAcademy, 9/28/18) Funding Circle with a market cap of 1.2 Bn pounds, unfortunately, continued a disappointing trend of post IPO price moves for FinTech stocks. Funding Circle closed virtually unchanged on its first day of trading, but is since down by ~22%.
- CITIC Capital-Backed Chinese Fintech Firm Samoyed Financial Files For $80M US IPO (China Money Network, 9/29/18) Samoyed, a Chinese FinTech company that provides short-term credit, has filed for an US IPO.
- Petal raises $34 million and launches credit card for people without credit scores (Venture Beat, 10/2/18) Petal, a company that provides credit cards to underbanked individuals, has raised $34 Mn from Jefferies and Silicon Valley Bank, to expand its credit card offering.
- EasyKnock Secures New Venture Capital Funding to Unlock Home Equity for Millions (Global News Wire, 9/19/18) EasyKnock, a residential sale-and-lease-back platform, has raised $3.5 Mn in seed financing and $100 Mn in debt financing from Montage Ventures among others, to increase real estate closings.
- SoFi Forms New Partnership With Kukun to Help Homeowners Understand the Remodeling Cost (CrowdFund Insider, 10/3/18) As SoFi branches out into providing home improvement loans, it has partnered with Kukun to help its customers estimate the impact of their proposed home improvements on the value of their home.
Lighter Fare:
- We’re Close To Confirming the Very First Exomoon (Popular Mechanics, 10/3/18) The first moon outside our solar system to be identified and explored will expand our horizons in astronomy.