The Fed signaled that it would stop raising rates in the short-term and promised flexibility in unwinding QE. Fed Chair Powell indicated balance sheet normalization would end “sooner and with a larger balance sheet”. The Fed shifted focus towards sustaining the current expansion but reiterated that US growth remained strong.

The US economy generated 304 k jobs in January, marking a record 100 months of job growth. Average hourly earnings rose by 3.2% and the unemployment rate rose slightly to 4%.

This week’s big funding news was that digital savings and investing platform Acorns raised $105 million in its Series E round, bringing its total valuation to $860 million. The six-year-old fintech received the cash injection from investors including Comcast Ventures, NBCUniversal, Bain Capital Ventures, BlackRock, TPG’s Rise Fund, DST and Michael Dell’s MSD Capital, according to CNBC.

Better Mortgage, a digital mortgage lender, raised $70 Mn from American Express Ventures, among others.

Kroll rated Marlette’s latest $262 Mn MFT 2019-1 deal AA on the senior tranche. The deal has ~22 k loans with an average balance of $13.5 k and weighted average original term of 46 months. The borrowers have a weighted average FICO score of 718.

Marlette CEO Jeff Meiler discussed profitability and loan performance with Peter Renton (transcript and podcast here).  Marlette announced another year of profitability in 2018. Loans grew by 27% YoY while net income increased by 79% YoY. Originations of Marlette’s Best Egg loans now exceed $7 Bn.

Prosper’s December Performance Update showed that Prosper is focusing on making higher grade loans with 62% of December originations rated AA-B. The WA FICO increased by 9 points YoY to 717 and the average loan size on the platform was $13,305. WA interest rate decreased by 8 bps MoM.

Greensky launched a new loan product for elective health care. The product is a revolving credit line of up to $25,000 delivered POS via doctors, dentists, and other healthcare providers. The product offers a deferred interest option whereby borrowers owe no interest as long as they pay off the principal balance before the promo period ends.

In this week’s newsletter, we will look at comments from executives at banks and credit card issuers on where we are in the credit cycle.

Where are we in the credit cycle?

Overall, lenders view the US consumer as healthy and the US economic growth as solid. However, Bank execs expected a lower rate of growth concerns due to geopolitical, trade-related factors, and the risk of “talking ourselves into the next recession”.

Brian Moynihan, CEO

“Our research team predicts economic growth to be lower in 2019 that it was in 2018 as do the general economic community. However, as true these estimates still point to solid growth. […] solid growth reflecting customer confidence, responsible borrowing and lending. […] Our small business clients remain optimistic. The geopolitical comment however affects all of us. […] Trade wars, government shutdown, China slowdown, EU slowdown, Brexit you name it both here and abroad impact people’s economic growth outlook. We are mindful of these potential impacts, but we see in U.S. strong indications of continued growth due to the benefits we have here in our economy.”

Michael Corbat, CEO

“I would say we see is we actually see certainly a U.S. and even more broad global economy where the underlying fundamentals, in particular on a domestic economy basis as you go around the world, comprised of strong, tight labor markets, reasonable wage increases, good consumption while investment coming down still reasonable. And I think what’s clearly and in the fourth quarter overshadowed that was really market fears over what the transition from QE to QT might look and feel like and obviously we saw a lot being paid attention to pretty much any word that came out of the Fed’s mouth. And I think the third piece is that adds to that volatility is things such as the on, off again momentum of trade negotiations, obviously affecting two of the biggest economies in the world. […] So we don’t see it and I think what we’ve said before and I think others have said before is that right now we see the biggest risk in the global economy is one of talking ourselves into the next recession as opposed to the underlying fundamentals taking us there.

R. Mark Graf, CFO

“First, our base case for 2019 adopts the consensus view that macroeconomic conditions remain stable, although our growth plan does contemplate a degree of tightening at the margin. The economy is growing. Of particular importance to us as a consumer lender, employment and wages are growing and consumer leverage remains manageable. Very simply, we don’t see any indication in the data of a turn in the credit cycle.”

David Solomon, CEO

“Recently there has been quite a disconnect between the weak market sentiment and the optimism we continue to see in corporate board rooms. […] A concern that central banks will continue to tighten into a slowing growth environment caused weakness in equity and credit markets and resulted in an increase in volatility of many macro assets. While this has created challenges for many of our institutional investing clients, it is also driving potential future opportunities for active managers to add value. In addition, for now the absolute level of activity in the real economy remains fairly robust and this is reflected in broad CEO sentiment and our Investment Banking transaction backlog.”

Rich Fairbanks, CEO

While our credit numbers are great and you can see the same numbers that we see, we’re deep into the credit cycle and nobody knows when this thing is going to turn, but we believe that the prudent thing to do is have our foot on the gas of account originations and our foot a little bit on the break with respect to credit line extension. We see a very good opportunity and great traction in terms of originating accounts, but we continue to be cautious at this part of the cycle with respect to the extension of credit line and so in that sense it is little bit more about building option value.”

Jeff Campbell, CFO

“Our 2018 credit performance was a little better than we expected and the data we derive and analyze from all the parties in our integrated payments platform helped us maintain industry-leading write-offs. 

More broadly as we look at the fourth quarter, we do not see anything in our portfolio that would suggest a significant change in the credit environment.”

 Industry Update: 

Lighter Fare: