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:
- Payrolls Rise More Than Forecast as Wage Gains Hit 3.1% (Bloomberg, 11/2/18) The US economy added 250 k jobs in October. Wages grew at 3.1%, the highest increase since 2009.
- Tame Inflation Keeps Fed on Track (WSJ, 10/29/18) The Fed’s preferred inflation gauge PCE rose by 2% YoY keeping the Fed on track to raise rates in December.
- That Big Mac and Coke Now Comes with a Side Order of Inflation (WSJ, 10/31/18) Household items and food have seen prices accelerate as manufacturers raise prices due to tariff pressures and rising input costs, which could eventually force the Fed to act more aggressively.
- State Regulators File Second Lawsuit Opposing OCC Fintech Charter (National Law Review, 10/31/18) The Conference of State Bank Supervisors has filed a second lawsuit challenging the OCC’s authority to grant such charters.
- FTC puts student lenders on notice by citing misleading ads at SoFi (American Banker, 10/29/18) SoFi has agreed to settle federal charges that it misled borrowers about how much they could save by refinancing their student loans.
- SCLP 2018-4 Pre-Sale (KBRA, 10/31/18) KBRA has rated the tranches A to D AAA, AA+, A+ and BBB respectively. This is the first consumer unsecured deal to receive a AAA rating.
- MFT 2018-4 Pre-Sale (KBRA, 11/1/18) KBRA has rated the tranches A to C AA, A, and BBB- respectively.
- Prosper Performance Update: September 2018 (Prosper Blog, 10/30/18) Prosper continues to reduce the risk profile of its originations with 61% rated AA-B.
- The pitfalls Discover’s new CEO sees in consumer lending (American Banker, 10/29/18) Discover has cautioned about the growth in personal loans and the potential for losses ahead and the difficulty in underwriting these loans due to the drift in borrowers’ credit scores.
- Credit-Card Spending Limits in the Crosshairs as Issuers Grow Cautious (WSJ, 10/29/18) Credit card issuers are proactively reducing spending limits as they see losses going up from their current near-historic lows.
- Capital One’s Tech Transformation (WSJ, 10/29/18) Capital One is investing in technology and has developed its chatbot to identify and warn users about fraudulent activities on their cards.
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.
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