Displaying items by tag: lending

(New York)

One would think that 2018 is the perfect time to boost lending to consumers. The economy is strong, the job market is robust, and things are generally humming along nicely. Think again, as US banks are worried about US consumer credit quality and are starting to reign in lending. Bad debt is rising and so is the amount of bad credit banks are having to swallow. Beyond just fundamentals, the competition to lend has made the market uber-competitive, which heightens the risks for lenders because of weaker terms.

FINSUM: Consumer credit is tightening its belt across the board as credit balloons and standards fall. We wonder how much this tightening might impact the economy over the next year.

(New York)

There is a new big asset class getting very popular on Wall Street. You may think it is some new esoteric structured credit or volatility product. But guess what, it is just about the oldest product in the world—business lending, or “direct-lending” as it is being called. It has been increasingly apparent on the fringes that big Wall Street players, like Goldman Sachs, have recently taken an interest in direct lending. Now, the whole Street is getting in on the action. Major private shops like KKR and others have started direct lending funds, and the area has returned handsomely, up over 20% this year. The idea of the funds is to lend to businesses and whose credit excludes them from the usual channels.

FINSUM: These funds seem likely to do well until a recession or period of deleveraging occurs, at which time they are likely to see high levels of defaults.

(New York)

Goldman Sachs has been pushing into a lot of new business lines over the last few years—consumer lending being the principal one, as well as further into wealth management. However, the company is in the midst of launching yet another—business banking. The bank is working on a suite of tools for large businesses to use, such as deposit accounts, cash management tools etc. The move is seen by some as an odd one, as such services are dominated by huge-balance sheet integrated banks, such as JP Morgan and Citi.

FINSUM: This could become a good business, but it is not clear that Goldman has any strategic advantage to gain market share.

(New York)

We at FINSUM have been keeping a close eye on the economy, and in particular, looking for any signs of the end of the current business cycle. Today, we might have found one. One of the big worries of economists and investors of late has been the slowdown in consumer spending—a concern in its own right, but not conclusive. Today, we might be seeing why. Lenders all over the US have been tightening their businesses and lending out less cash. That has left less money available for purchases. From 2011 through the end of 2016, credit standards had loosened, but since then they have tightened, even as wages have grown and unemployment has fallen.

FINSUM: This decline in lending seems to show that many lenders think there is more risk than reward in the economy, which may in turn bring on the recession they sense is coming.

(New York)

Goldman Sachs is in the middle of beefing up its wealth management business. It is adding advisors and trying to boost AUM. The division is very small compared to competitors, but its advisors have very high average revenue ($4.5m vs $1.1m at Morgan Stanley). Now, it is also boosting its securities-based lending offering. Through a program called GS Select, the firm aggregates other wealth managers and makes loans of between $75k to $25m to their clients, all backed by the securities held in the portfolio of the borrower. The program was just joined by LPL, which is now one of 40 firms participating in GS Select.

FINSUM: Aggregating other wealth managers to provide lending sounds very profitable. Evidently GS is also allowing much smaller managers onto the platform.