Goldman Sachs is closing down Marcus Personal Loans: 4 Sales That Stand in Advantage | The Motley Fool

The black sheep among the big banks in this era of profits is certain Goldman Sachs (GS -0.24%). The Wall Street bank saw its earnings fall last quarter, as its core business-investment business stalled amid a historically weak initial public offering and merger. In addition, trading income decreased along with the decline in credit and equity markets.

In order to differentiate it from the investment banking and trading industry, Goldman has tried to develop its own retail banking division under its Marcus brand. Started six years ago, Marcus offers high quality savings accounts, credit cards, and personal loans.

But the consumer banking division did not fare well, losing more than $3 billion since December 2020. In the fourth quarter, Goldman’s consumer bank recovered another $778 million in losses. . For all of 2022, the red ink is nearly $2 billion.

In response to the increasing losses to bankers, the management recently announced that it will no longer originate Marcus loans, and it is likely that the existing loans will be transferred to rolled his books. As of the third quarter of 2022, Goldman held $5.2 billion in personal loans on its balance sheet.

But can Goldman’s losses be recovered by someone else? While exiting this market, here are four fintechs that can be successful.

The personal loan industry is ready to pounce

Although some of the big banks offer their own unsecured loans, they are not their primary business and are usually limited to people they know well.

However, the emergence of new things fintech platforms In the last ten years the growth in the personal loan sector has accelerated in recent years. Leading companies include LendingClub (LC -2.87%), SoFi Technologies (SOPHIE -1.42%)and Begin (UPST -4.68%) It has come on the scene with modern technology and there is little or no charge for physical branch offices. This allows them to purchase loans at lower rates than credit cards issued by banks.

Since 2016, the personal-loan market in the US has more than doubled, growing from $91 billion in the first quarter of 2016 to $210 billion in the third quarter of 2022, which was up 34% year-on-year (YOY).

It’s no wonder why. Inflation has hit consumer budgets in 2022, and interest rates have risen. Because credit cards offer high and variable rates, consumers tend to turn to low-interest personal loans, which are easier to manage than juggling multiple credit cards. .

In addition to these fintechs, many credit cards Find Financial Services (DFS -2.91%) there is also a personal finance business.

Here’s how these four personal loan leaders look based on origination, loans outstanding, and total assets being serviced ( consolidated credit held by companies and/or third parties) in the third quarter 2022:

Company

Q3 2022 Start

Q3 2022 Start Growth IOY

Q3 2022 Loans Remaining on Balance Sheet

Q3 2022 Services Portfolio

LendingClub

$3.54 billion

14%

$4.41 billion

$15.93 billion

SoFi

$2.81 billion

71%

$6.8 billion

$10.85 billion

Begin

$1.79 billion

(42%)

$249 million

N/A

Find Financial Services

$784 million

11%

$7.67 billion

$7.67 billion

Data sources: publications and company income statements. Personal loans only. Search for sources that record parents and restore them. Upstart does not disclose the size of its service provider.

As you can see, there seems to be a big change in market share between SoFi, which accelerated its personal loans, and Upstart, which pulled back in a big way.

What is the difference between Upstart and its peers? All the other lenders shown above have a bank license, which means they can collect deposits, allowing them to hold more loans on their balance sheet. On the other hand, Upstart does not have a banking or savings license, with a business model that relies on third-party loan vendors.

As interest rates have risen at a rapid pace, third-party loan buyers have pulled back from buying securities in the past year. That’s what left Upstart to shrink the startup, because there weren’t enough third parties to sell to – an ongoing problem for the company.

In the meantime, it’s good to see that SoFi is accelerating its personal loans in many ways, especially with financial conditions tightening and fears of a recession. It also doesn’t look like SoFi is just taking on the loans that Upstart is leaving behind. Instead, SoFi targets those who graduated from graduate school, with an average FICO score on its 746 loans and an average income of $160,000.

That’s in contrast to Upstart, which tries to secure “neglected” borrowers. FICO (FICO 0.33%) score a little lower on the credit score, usually in the low 600s to low 700s.

So it seems that the company has some special models among the best players. And let’s not forget the big and small banks, private fintechs participating in different parts of the personal-lending market.

Image source: Getty Images.

How will Goldman’s departure affect things?

According to Goldman’s special rating, it appears that its borrowers may be in the prime category. That would benefit both SoFi as well as LendingClub, which has also targeted top lenders in recent years.

In other words, heading into an economic downturn, investors should be wary of very high growth in startups, which means caution for SoFi. For example, LendingClub has tightened credit and slowed down its startup this year.

Although SoFi noted that delinquencies and fees have remained low to date, these new loans have only recently started. Therefore, investors may want to monitor SoFi’s loan portfolio over the next year or two. If the 2022 loan vintage does not show a lot of pay-off, it is a very good thing for its competitive position. A bank that can grow quickly without the risks of financial negligence can present a competitive advantage, whether in terms of underwriting or marketing.

LC Year to Date Total Return (Each) Chart

LC annual income (days); information b YCharts.

Candidates for 2023

As you can see, each of these stocks had a hot start to the year, although they still remain below levels from last year. Fintech is one of the most affected sectors right now bear marketbecause these stocks have underperformed both technology and financial sectors.

However, if these lenders go through a downturn, or if this negative pressure doesn’t occur, they could have a lot of upside in the recovery. . It can be proven especially for these group leaders, if they can increase the exit of Goldman and buy market shares.

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