Why the biggest losers are Goldman Sachs and Apple Pay

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Major credit card issuers have released chargeback and chargeback data for August, providing insight into the latest spending habits of Americans.

With prices soaring due to high levels of inflation – at 8.3% in August – some consumers have turned to credit cards in a bid to supplement their increasingly tight budgets, while many have trouble making their payments.

Credit card issuance in the United States is on the rise. In the first quarter of this year, Americans held 537 million credit card accounts, up 6% from a year earlier.

Credit card debt fell from a record high of $930 billion at the end of 2019, according to New York Fed data, but the average credit card holder in the United States still had 5,769 $ in credit card debt in the first quarter of 2022, with balances only slightly below pre-pandemic levels, according to MoneyGeek.

As customers with good and excellent credit scores keep pace with payments, subprime mortgage users seem to be struggling to repay their debt, putting additional pressure on financial institutions.

Among these big names, Goldman Sachs has been hit by this situation, leading investors to doubt the company’s adventurous partnership with Apple as the main card issuer behind Apple Card, the Apple Pay service.

Card defaults, write-offs in August for American Express, Citigroup, Bank of America, JPMorgan Chase

Most major credit card issuers posted small increases in delinquency, that is, card default one month past due date, for August.

American Express reported a delinquency rate of 0.8% in August, down from 0.7% in July and 0.6% a year earlier.

Net write-offs were flat at 0.8%, equal to July and June rates, although up from 0.6% annually.

Credit card companies often write off certain debts as losses when they deem there is no chance of being able to collect them from the debtor, usually after six months of non-receipt of payment. These are also called landfills.

Total August lending for AMEX was up $200 million from July numbers and $800 million from June, to a total of $20.2 billion.

For Citigroup, the delinquency rate in August reached 0.82%, against 0.79% in July and 0.80% a year earlier.

The net charge was 1.33%, compared to 1.19% in July.

Bank of America’s delinquency rate climbed in August to 0.88% from 0.85% in July. This, however, was down year-on-year from 0.90% in August 2021.

JPMorgan Chase maintained its July-June delinquency rate at 0.66%. The rate was 0.62% a year ago.

Its imputation rate rose to 1.15% at the end of August against 1.02% in July.

The JP Morgan bank logo at the bank’s French headquarters in Paris on June 29, 2021. (Michel Euler/AFP via Getty Images)

Goldman Sachs’ Apple Pay business could be a bad apple

Earlier this week, Goldman Sachs reported a credit card loan loss rate of 2.93% from write-offs in the second quarter of this year. This is the worst among major credit card issuers.

According to CNBC, the reasons Goldman Sachs customers are more behind on their payments than those of other financial institutions is that user profiles are closer to those of subprime offerings, with a quarter of consumers showing FICO scores. less than 660.

JPMorgan, for its part, only had 12% of its loans granted to clients below the 660 score.

Good scores are considered between 661 and 780, while excellent ones range from 781 to 850.

The subprime cohort is likely affected by rising inflation, with an increasingly fragile ability to make basic monthly payments. Last week, Fed officials pointed to the fact that low-income residents have been hardest hit by rising inflation.

Goldman got into consumer lending in 2016 and took off in 2019 when it became the primary issuer of Apple Card, the credit card associated with Apple Pay accounts.

The bank currently has 14 million customers and a $16 billion loan balance. Apple Card is normally approved for customers with low credit scores at higher rates than competing card products from other issuers.

Goldman’s loss rate is even higher than that of subprime lenders like Capital One, which had an imputation rate of 2.26%, with a similar proportion of under 600 customers, at 30%.

This difference between the charge rates of the two companies could be explained by the fact that Apple Pay users tend to be new customers who are statistically more likely to miss payments.

Either way, Goldman needs to set aside additional cash to cover outstanding loans. The consumer side of its business is on track to lose $1.2 billion this year, according to Bloomberg.

By Nathan Ponieman

© 2022 The Epoch Times. The Epoch Times does not provide investment advice. All rights reserved.

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