Greetings,

The US economy generated wage growth of 3.1%, the highest since 2009. Wage growth coupled with a 2% rise in the Fed’s preferred inflation gauge PCE, keep the Fed on track to raise rates in December. The market-implied probability of a rate hike in December is now at 80%.

QED Investors has raised its largest fund to-date. QED raised $175 Mn in its fifth fund which is focused on early-stage FinTech. QED also released their first quarterly newsletter. (Subscribe here) Matt Burton, the founder and CEO of the Orchard platform, joined as a partner and will lead QED Belay, the newly formalized founding stage investment platform.

SoFi and Marlette are issuing their fourth Consumer Unsecured deals of 2018. SCLP 2018-4 is a $549 Mn securitization. KBRA has rated the tranches A to D AAA, AA+, A+ and BBB respectively. SCLP 2018-4 is the first consumer unsecured deal to receive a AAA rating. MFT 2018-4 is a $266 Mn securitization. KBRA has rated the tranches A to C AA, A, and BBB- respectively.

In regulatory news, the Conference of State Bank Supervisors has filed a second lawsuit to prevent the OCC from issuing its FinTech charter. The lawsuit challenges the OCC’s authority to grant such charters. We believe that the FinTech charter is a step in the right direction. You can view our prior presentation on the OCC’s FinTech charter and watch the webinar replay.

In this week’s newsletter we contrast the outlooks provided by personal loan issuers. As Discover and Marcus pull back on personal loan origination, HSBC and Barclays are launching new offerings.

HSBC and Barclays Leaning In, Marcus and Discover Pulling Back  

HSBC and Barclays are launching new unsecured personal loan products. These products will complement the banks’ existing US credit card offerings while competing head-on with Marcus on its home turf. HSBC and Barclays are looking to capture a piece of the $140 Bn personal loan market, that is growing at an annualized rate of eighteen percent.

Discover and Marcus are cautious about the growth in personal loans and the potential for higher losses. GS will temper Marcus’s origination growth and not “chase volume targets”. We note that GS is the only bank whose provision for loan losses increased in Q3 – GS provisions rose by 172% YoY to $174 Mn, while loans grew by 72% – far outpacing loan growth (and what might be expected from loan seasoning).

Discover has also started to scale back personal loan origination, and is bracing for higher losses as the loans season. Discover’s view is that new originations are below its return objectives. Discover’s CEO Roger Hochschild also pointed out that underwriting personal loans is “tricky” as borrowers’ credit scores usually drift lower post origination.

Industry Update:

 Lighter Fare:

  • AI’s Paint by Numbers (WSJ, 10/26/18) The AI painting “Edmond de Belamy” was the first to sell for six figures.