Goldman curtailed personal lending after launching Apple card

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Goldman Sachs sharply curtailed its originations of personal loans last year amid the rollout of its credit card partnership with Apple, the company disclosed Wednesday.

The New York bank said that personal loans outstanding at the end of 2019 were in the $5 billion range, unchanged from a year earlier. Goldman started offering personal loans under its Marcus brand in the fall of 2016 and hit $4 billion in originations in less than two years. The company retains all of its personal loans on its own books.

“The slowing pace of growth in our Marcus unsecured loan business reflected the anticipated growth in our credit card lending from the launch of Apple Card,” Chief Financial Officer Stephen Scherr said Wednesday during the company’s quarterly earnings call.

The Apple Card, which is Goldman’s foray into the credit card business, launched in August 2019 and already the company says it has approximately $2 billion in credit card loans outstanding.

Goldman generally eschewed consumer banking during its first 145 years, but has recently built retail loan and deposit franchises from scratch. The mobile app for Marcus, which has both borrowing and saving features, was rolled out last week.

On Wednesday Goldman Sachs disclosed new financial details about its consumer banking business for the first time, while promising to provide additional information about its growth plans for the consumer segment at a Jan. 29 event for investors.

Goldman reported $864 million in net revenue from consumer banking last year, which was up 41% from 2018.

The company also said that its consumer deposits rose by 67% last year to $60 billion, and that higher loss provisions for consumer loans contributed to a 58% increase in its provision for credit losses between 2018 and 2019.

Some Wall Street investors have been anxious about Goldman’s ability to navigate the consumer credit cycle, given its dearth of experience in retail lending. Both the Apple Card and Marcus personal loans have been available to consumers with subprime credit scores.

Goldman reportedly began reining in its loan origination target for Marcus in 2018 amid concerns about the late stage of the credit cycle and changes in market data. During 2019, Goldman’s companywide net charge-off rate rose to 0.6% from 0.5% the previous year.

“Our losses remain in line with our expectations, given the current point in the cycle,” Scherr said during Wednesday’s call. “We continue to monitor the portfolio and broader risk factors, and believe our credit exposure remains appropriately sized.”

During the same call, an analyst asked Goldman executives whether delinquent Apple Card loans will prove harder to collect than other card loans, given that the venerable bank has taken a backseat to Apple in the credit card’s branding.

“Notwithstanding whoever lays claim to the creation of the card, there’s only one institution that is making underwriting decisions,” Scherr said in response. “And that’s Goldman Sachs.”

Goldman currently offers an online savings account in the U.K., and company executives have spoken in the past about the logic of an eventual expansion of the Marcus deposit franchise to Germany. But on Wednesday, Scherr indicated that the U.K.’s impending departure from the European Union has complicated Goldman’s international expansion plans.

“I think we’ll wait and see how things progress around Brexit before we make a decision about where we next plant a flag from a deposit perspective," he said.

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