This week, in one of our favorite quarterly analyses, we review earnings transcripts and comments from bank execs to assess their take on where we are in the credit cycle. Bank execs are in an unusually good position to spot risks on the horizon from changes in credit portfolios, deal pipeline, and various gauges of customer and investor sentiment.

First, a quick summary of headlines. The Fed agreed to keep interest rates on hold for longer according to the minutes of the April meeting. The decision is expected to help inflation pick up towards the Fed’s 2% target. The Fed’s latest ‘dot plot’, shown below, indicates Fed governors on the margin expect lower rates in the 2019 to 2021 timeframe suggesting lower growth expectations.

Source: PeerIQ, US Federal Reserve, Bloomberg

In securitization news, KBRA has rated the senior tranche Prosper’s latest PMIT 2019-3 consumer deal A-. The $381 Mn deal has 30 k loans with an average balance of $12.5 k. The borrowers have a weighted average FICO score of 717, the highest among Prosper’s last 5 deals. You can read about all the securitizations in the first quarter of 2019 in our recently released 1Q2019 MPL Securitization Tracker.

Kroll also released a report on the Evolution of the Consumer Loan Marketplace Sector to lay out how the sector has matured over time. The report comes on the heels of a Fitch report that said that declining credit enhancements in MPL deals is unwarranted.   

Are Digital Banks Struggling?

A new survey by Forbes on accounts at digital banks showed that consumers have opened just 7 Mn accounts at digital banks. Most of these accounts are not primary checking accounts. We recommend reviewing Peter Renton’s analysis which summarizes the adoption rates of digital banks (takeaway: they have a long way to go). Flanker banks like JPM’s Finn and Citi’s digital bank will also play a big role in attracting new consumers to entrenched players. Citi’s digital bank garnered over $1 Bn in deposits in the first quarter of 2019. The losers in this race might be smaller banks who do not have the capability to provide modern digital offerings.   

Where Are We in the Credit Cycle?

Executives still see the economy growing, although at a slowing pace, consistent with the Fed dot plot noted above.

Lenders are also looking beyond credit scores as derogatory events from the crisis continue to lead to credit score inflation.


Brian Moynihan, CEO


“…what we see is right now the fundamentals of the economy in the U.S. on a global basis and the fundamentals of consumers and unemployment being low as you mentioned, means that credit is in good shape and we just don’t see that changing a lot.”

Jamie Dimon, CEO


“But if you look at the American economy, the consumer’s in good shape, the balance sheet’s in good shape, people are going back to the workforce. Companies have plenty of capital, and capital expenditure is still up year-over-year, little bit less this quarter than last quarter.

Our capital is being retained in the United States. Business confidence and consumer confidence are both rather high and not all-time peaks, rather high. So, you can just easily, it can go on for years. There’s no law that says it has to stop.

We do make a list, and look at all the other things, geopolitical issues, lower liquidity. So, there may be a confluence of events that somehow caused the recession, but it may not be in 2019, 2020, 2021. Obviously at one point though there will probably be something, and yeah I think the bigger short-term risk would be something to go wrong in China […]”

David Solomon, CEO


“[…] we saw central banks pivot to an accommodative policy on rate. In the U.S., the Fed shifted from its prior path of incremental tightening to a more neutral stance. In Europe, the ECB signaled move back monetary stimulus. Central banks in Asia also shifted to more dovish rhetoric amid a backdrop of low inflation and somewhat disappointing growth. The net result was a lower volatility environment as government bonds rallied and yield curves flattened in the U.S. and Europe. […] ongoing geopolitical risks, including the U.S. China trade and Brexit negotiations added uncertainty. […] Our backlog for IPO activity is robust. In that vein, we are optimistic on the forward as underlying indicators remain encouraging, and we’re still very early in the second quarter.

Rich Fairbanks, CEO


“[…] we’re kind of on the lookout for it but we have now with the benefit of hindsight seen some degradation of performance of consumers for a given FICO growth. This isn’t a Capital One thing in fact it isn’t even an industry origination thing. This is really a; we can see that all the way just sorts of looking at bureau data.

And the reason that we sort of hypothesized this is, well, let me say our hypothesis for this modest effect, but I think it is important to note is that given the how long derogatory data stays on the credit bureaus, the derogatory data from the great recession has over the last few years been rolling off.

And so, our hypothesis has been and one of the reasons for our own conservatism has been, we may be looking at data that are might do not paying for full picture of a consumer’s sort of credit history. So, we’ve been on the lookout for that.”

Stephen Squeri, CEO

“[…] we started the year with mixed signals in the economic environment. Since then, we’ve seen the economy grow at a steady pace, although not quite as strong as the robust levels we saw in 2018. Consistent with what we said at our Investor Day last month, we are not seeing any broad signals in our business of a significant economic downturn.”

 PeerIQ’s Consumer Credit Digest

PeerIQ’s Consumer Credit Digest allows users to track trends in each major asset class including Credit Availability, Credit Health, and Performance Analysis via an affordable monthly publication. The Digest is derived from TransUnion data.

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We wish our readers a very Happy Memorial Day and an enjoyable summer! 

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