Retail sales increased 0.3% MoM in April as consumers benefited from wage growth and higher disposable income due to the tax overhaul. Consumer spending and access to credit continues to drive GDP growth and the report should allay investor concerns around US GDP growth.
In related news, banks are reporting lower RoA on credit card assets as loss rates rise and rewards costs increase. Higher interest rates and growing competition in the credit card space are crimping growth in card revenues while losses are rising due to a return to credit normalization. Average net-charge-off rates at large banks rose to 3.46% in 1Q2018.
In earnings news, Prosper reported flat revenue growth YoY at $30.5 Mn in 1Q2018. Net loss dropped to $11.4 Mn while originations increased by 27% YoY to $744 Mn. Prosper also completed its largest securitization of $650 Mn PMIT 2018-1, and now has an ABS funding base of $2 Bn and $100 Mn in warehouse lines. Look out for our Lending Earnings Insight tracker coming soon that discusses banks’, fintechs’ and credit card issuers’ earnings. The previous Lending Earnings Insight tracker is available here.
Anthony Noto’s first shareholder letter as the CEO of SoFi laid out his vision for growth of the company and its mission. Noto made the following notable points:
- SoFi originated $3.6Bn in loans in 1Q2018, a 27% YoY increase. SoFi now has 59,000 members.
- The SoFi at Work program which partners with companies to help their employees refinance student debt expanded its loan volume by 118% YoY. SoFi at Work is a major growth initiative for the company, and SoFi added 30 partner organizations to the program in 1Q2018.
- SoFi is expanding into the wealth management space and its asset base increased by 31% YoY. SoFi is looking to offer comprehensive investment advice beyond robo-advisors.
- SoFi is looking to balance “growth vs profitability” as its customer acquisition costs are nearly twice those of other online lenders, although SoFi’s customer profile tends towards more prime borrowers with larger loan balances.
- SoFi established a set of 11 values like “embrace diversity” and “take care of other people and help them grow.”
Nat Hoopes, Executive Director of the Marketplace Lending Association, announced the addition of 9 new members like Social Finance (SoFi), LendingPoint, College Ave, Laurel Road, Education Loan Finance (ELFI), Arcadia Funds, Victory Park Capital, PricewaterhouseCoopers, and First Associates to the MLA. This brings the total number of members to 24 and enables the MLA to expand its efforts to engage with state and federal policymakers in the marketplace lending space.
In fintech financing news, Vikram Pandit, ex-CEO of Citigroup and an investor in PeerIQ, has invested $100 Mn in FairSquare Financial, a startup that issues credit cards to underbanked individuals with credit scores between 600-700. FairSquare is led by CEO Rob Habgood and has extended $400 Mn in credit so far. In other news, Fundation, a digital small business lender, has secured a $120 Mn credit facility from SunTrust and Waterfall Asset Management to extend credit to small businesses. Guggenheim has extended a $600 Mn credit facility to LendingPoint, a near-prime consumer credit and POS lender, to expand lending operations.
KBRA has rated the tranches on Marlette’s latest $310 Mn deal AA, A and BBB-, and on Avant’s latest $222 Mn deal A-, BBB- and BB-. Below we compare these two new issue deals.
Deal Deep Dive MFT 2018-2 vs AVNT 2018-A
This week we compare 2 very different MPL personal loan securitizations – Marlette’s MFT 2018-2 Prime deal and Avant’s AVNT 2018-A Near Prime deal. Both deals have different collateral characteristics and loss expectations, and cater to different investor bases. Although, the subordination levels on the A classes are similar, the higher loss expectations on AVNT lead to a rating one notch lower than that on MFT 2018-2 A despite significantly higher excess spread.
AVNT 2018-A has lower average loan size by $6,435, shorter weighted average loan terms by 9 months and higher WAC by 16.28%. This is a reflection of the quality of borrowers that Avant and Marlette target. Marlette’s prime borrowers have higher weighted average FICO scores by 59 points than Avant’s near prime borrowers. The geographic distribution is quite similar between the two deals.
Source: PeerIQ, KBRA
Bond Characteristics and Pricing
The significantly higher WAC on AVNT 2018-A leads to a 14.8% pickup in excess spread. KBRA’s base case loss estimate is 7.4% higher on AVNT 2018-A, which leads to a 7.4% higher loss-adjusted excess spread on AVNT 2018-A. This excess spread provides a meaningful cushion if losses exceed base case estimates.
Source: PeerIQ, KBRA
AVNT 2018-A has 3.3% lower O/C which is compensated by 14.8% higher excess spread. The A tranches have similar CE in both deals but Marlette’s A is rated one notch higher.
Source: PeerIQ, KBRA
AVNT 2018-A’s cumulative net loss trigger starts lower than that on MFT 2018-2 but picks up by month 7 and is ~10% higher after month 20. Given the back-loaded nature of losses on MPL consumer deals, AVNT 2018-A provides strong trigger protection.
Investors that seek to analyze these collateral pools further on the PeerIQ platform should reach out to learn more.
- Climbing Gas Prices Didn’t Keep Consumers from Spring Spending (WSJ, 5/15/18) Retail sales grew by 0.3% MoM driven by wage gains and the lower tax rate, keeping spending-fueled US GDP growth on track.
- Why the Credit-Card Boom May Have Just Peaked (WSJ, 5/16/18) Banks’ ROA on credit cards is dropping as losses are picking up and rewards costs are increasing.
- Former Citigroup CEO Vikram Pandit Makes $100 Million Investment in Credit-Card Startup (WSJ, 5/14/18) PeerIQ investor Vikram Pandit invested $100 Mn in FairSquare Financial which offers credit cards to underserved borrowers with credit scores between 600-700.
- Fundation Secures $120 Million Credit Facility from SunTrust Bank (BusinessWire, 5/16/18) SunTrust and Waterfall Asset Mgt extended a $120 Mn credit facility to Fundation to extend credit to small businesses.
- LendingPoint Secures up to $600 Million Credit Facility Arranged by Guggenheim Securities (BusinessWire, 5/17/18) LendingPoint, a near-prime consumer credit and POS lender, has secured a $600 Mn credit facility from Guggenheim.
- TransUnion Announces Agreement to Acquire iovation to Strengthen Fraud and Identity Solutions (Globe NewsWire, 5/18/18) TransUnion, a PeerIQ investor, has agreed to acquire iovation, a fraud management solutions provider.
- PayPal Agrees to Buy European Fintech Startup iZettle for About $2.2 Billion (WSJ, 5/17/18) PayPal has agreed to buy iZettle, a competitor to Square in Europe, as it looks to expand payment processing for small businesses globally.
- MFT 2018-2 Presale (KBRA, 5/15/18) KBRA has rated the tranches on Marlette’s latest $310 Mn deal AA, A and BBB-.
- AVNT 2018-A Presale (KBRA, 5/17/18) KBRA has rated the tranches on Avant’s latest $222 Mn deal A-, BBB- and BB-.
- Marketplace Lending Association Announces Nine New Members (PR NewsWire, 5/16/18) Nat Hoopes, Executive Director of MLA, announced 9 new members incl. SoFi and Victory Park Capital, which will help MLA expand its engagement with state and federal policymakers.
- Prosper Reports Strong First Quarter Growth with Loan Originations up 27% Year-over-Year (BusinessWire, 5/14/18) Prosper’s revenue was flat YoY at $30.5 Mn, net loss decreased to $11.4 Mn and originations increased by 27% YoY to $744 Mn,
- Anthony Noto’s first shareholder letter as SoFi CEO outlines company values, growth areas (CNBC, 5/15/18) Noto laid out a set of 11 values, and his priorities for growth like SoFi at Work and wealth management, along with a focus on balancing profitability with growth.
- Goldman Sachs eyes Germany for expansion of Marcus (FT, 5/16/18) Marcus’ international expansion continues as GS targets Germany after UK.
- Morgan Stanley to Follow Goldman in Bet on Brazilian Fintech (Bloomberg, 5/14/18) MS and GS are lending to Brazil’s emerging Fintech startups like Geru and Nubank.
- The one area where banks and fintechs want more regulation (American Banker, 5/11/18) Banks are looking for clarity on how to handle customer’s financial data when it is shared with data aggregators and fintech companies.
- BuildDirect Partners with Affirm to Offer A Simple Way to Purchase Home Improvement & Renovation Products Online (BuildDirect, 5/14/18) Affirm is tying up with BuildDirect to offer home improvement loans, a category GreenSky and Goldman are also competing in.
- Citizens Financial to Launch Online Consumer Bank (PYMNTS, 5/14/18) Citizens Financial is launching an online bank that will offer checking and savings accounts.
- Chime Surpasses One Million Bank Accounts (PR NewsWire, 5/16/18) Chime, an online bank has reached 1 Mn accounts and $4.5 Bn in transaction volume, as challenger banks continue to take on traditional banks.
- Where Bank of America uses AI, and where its worries lie (American banker, 5/11/18) BofA is using AI for natural language processing in its chatbot, for fraud detection and for offering trading advice.
Subcutaneous Fitbits? These cows are modeling the tracking technology of the future (MIT Technology Review, 5/15/18) Researchers are testing next-generation fitness trackers which are embedded under the skin and can detect illnesses early on in cows, and will eventually be used in humans.