Goldman Sachs and rivals home in on risky consumer banking

Wall Street banks are eager to return to the market that got them into trouble with subprime mortgages © EPA


Lloyd Blankfein was a breezy opening act at a big industry event this week in Key Biscayne, Florida. On stage at the Ritz-Carlton the chairman and chief executive of Goldman Sachs was talking about Marcus, the bank’s new online savings and lending platform, which is targeting borrowers with scores as low as 660 on the 300-850 Fico scale. Goldman calls such people “creditworthy”; others call them subprime.

“We have a unique position . . . to be disruptive,” was how Mr Blankfein described Goldman’s moves into consumer banking. “We currently have over 350,000 customers across loans and deposits, with a clear potential to build relationships with millions of consumers.”

This kind of talk can get advocacy groups in a lather. It was only six years ago that Goldman was paying fines for “robosigning,” or rubber-stamping foreclosure documents without proper reviews. Fewer than two years ago the bank agreed a $5bn settlement with the US government for selling duff mortgage-backed securities. As part of that deal, the bank is still just over half way through providing $1.8bn of relief to consumers, forgiving principal payments on thousands of home loans.

But if a big Wall Street bank such as Goldman is now trying to build bridges with Main Street, then it is not necessarily bad news for consumers. It might even be good.

People on low incomes, after all, got a particularly raw deal after the financial crisis. As the likes of Citigroup and Bank of America hunkered down to repair their balance sheets, they eased off on supplying loans to people who, on paper at least, might struggle to pay them back.

Take mortgages. In 2010 the big three of Wells Fargo, BofA and JPMorgan Chase originated a combined 32 per cent of home loans for low- and moderate-income households, more or less matching their one-third share of deposits in America. But by 2016 the trio’s share of lending to such households had fallen to 15 per cent, according to a study by the Federal Reserve.

It was a similar story in credit cards. A 2016 study by two Harvard academics found that between 2007 and 2015, the share of new accounts opened for people with sub-680 credit scores slipped from 28 per cent to 20 per cent. Average credit lines, meanwhile, shrunk almost a third for subprime borrowers. That was a much bigger contraction than for the super-prime (a Fico score of 760 plus), which saw cuts in lines of just over one-tenth.

Data from US Census Bureau surveys indicate that a lot of these poorer people embraced the non-bank sector: payday lenders or pawnshops, or online lenders such as Lending Club and Prosper. The demographic composition of non-bank customers also shifted, becoming increasingly older, non-minority and more educated. Such borrowers might have been able to sustain their previous levels of consumption, but at a high cost: interest rates from non-bank lenders tend to run to triple digits, on an annual basis, rather than the 15 to 30 per cent rates typically seen on a credit card.

The banks were pulling back from these customer segments because they saw a triple threat: higher capital charges for riskier lending, a chance of being sued and fined if things went wrong — and then another round of capital charges for having been sued and fined.

Chase, for its part, made no secret of its preference for jumbo mortgages (those that exceed $453,100 in most parts of the country, or $679,650 in pricier markets). BofA took to publishing average Fico scores across its consumer-banking business, quarter by quarter, to show investors how it was inching upmarket. They all called it “de-risking”.

“They way overshot,” says Justin Schardin, director of financial regulatory reform at the Bipartisan Policy Center in Washington. Wariness towards people with thin files or a few knocks in their credit histories was one thing, he says. But “in the correction from the crisis, sometimes you go too far.”

As Goldman’s move shows, things are now changing. The banks’ balance sheets are in better shape, they’ve stopped paying huge fines for crisis-era misdeeds, and they have a generally less antagonistic relationship with the main regulatory agencies.

“We now feel like . . . de-risking activity is about over,” John Turner, president of Regions Financial Corp, a $124bn-in-assets bank in Alabama, told the conference near Miami.

Even battle-scarred BofA has been talking about getting on the front foot, opening branches in markets such as Pittsburgh and Indianapolis. The clean-up is “all behind us now”, said Brian Moynihan, chief executive. “We’ve got to grow, no excuses.”

If that improves options for the average consumer, so much the better.


Article From:-

Recent Articles:-

Woman charged with stealing $12,000 from elderly relative

1 Year After #BankBlack, America’s Biggest Black-Owned Bank Still Doing the Work

Could fintech be opening the door to more financial crime?

Bank charged fees to dead customers, officials say

FBI: Tracking device in money bag leads to bank robbers’ arrests

Documents: Mail theft ring stole checks from Baptist church; altered and cashed stolen checks


Alabama woman sentenced to prison for faking terminal cancer, taking donations over $260K

Barclays Bank faces fresh serious fraud office charges over £2.2bn loan given to Qatar in 2008

Ohio man in custody following Calera bank robbery; found hiding in girlfriend's attic