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Unexpectedly, Goldman Sachs is seeing the effects of missed payments and defaults from the weakest American borrowers.
Goldman’s credit card loss rate hit 2.93% in the second quarter, while rivals like Bank of America saw repayment rates at or near record levels. According to a note published by JPMorgan on September 6, this is the worst performance among major U.S. card issuers and “well above subprime lenders.”
Customers of Goldman’s credit cards have a demographic profile not dissimilar to those of issuers who specialize in subprime loans. According to filings, over a quarter of Goldman’s card loans have gone to customers with FICO scores below 660. So if the economy does indeed decline, as many economists predict, the bank may suffer greater losses.
Michael Taiano, senior director at Fitch Ratings, was quoted by CNBC as saying, “People are losing their jobs and inflation is at 40-year highs; that will impact the subprime cohort more because they are living paycheck to paycheck. The question surrounding Goldman Sachs is whether or not they expanded too quickly during a late-cycle economic period.”
Solomon will likely face questions from directors about the consumer business at a board meeting later this week, according to people with knowledge of the matter. There is internal dissent about who Solomon has picked to lead key businesses, and insiders hope he puts stronger managers in place, the people said. Some feel as though Solomon, who moonlights as a DJ on the international festival circuit, has been too extroverted, putting his own personal brand ahead of the bank’s, the people said.
Goldman declined to comment for this article, and Apple didn’t immediately return a request for comment. – More