Credit card customers at Goldman Sachs, one of the most prestigious banks on Wall Street, are starting to miss payments and default on loans at higher rates than bigger U.S. card issuers.
Americans are charging inflation on their credit cards, according to Federal Reserve Bank of New York data. The bank reported a 13 percent cumulative year-over-year increase in credit card balances — the biggest jump in 20 years.
Anchored by the Apple card since 2019, Goldman’s credit card business received a lot of praise for its ability to quickly bring in lots of new customers and deposits. Goldman beat out established card players to win the Apple Card account in 2019. The Apple card has been its biggest success in helping gain retail lending scale for the division, which has 14 million customers and $16 billion in loan balances.
But Goldman’s loss rate on credit card loans hit 2.93 percent in the second quarter. That’s the worst among big U.S. card issuers and “well above subprime lenders,” according to a Sept. 6 note from JPMorgan. By comparison, competitors such as Bank of America are seeing repayment rates at or near record levels.
As of June, 28 percent of Goldman’s credit card loans have gone to customers with FICO credit scores of less than 660, according to filings. This customer profile resembles that of issuers known for their subprime offerings, CNBC reported. That could expose Goldman to higher losses if the economy gets worse, as many forecasters expect it will.
Many Goldman peers such as JPMorgan and American Express aren’t lending to as many subprime borrowers, so their loss rates should be lower, Motley Fool reported. Goldman’s credit card trends are more comparable with Wells Fargo, Capital One, and Synchrony.
Goldman’s card business is a fraction of the size of JP Morgan’s and Bank of America’s but its 2.93 percent loss rate on credit card loans is almost twice the 1.47 percent rate of JPMorgan’s and BofA’s 1.6 percent.
“If there’s one thing Goldman is supposed to be good at, its risk management,” said Jason Mikula, an industry consultant and former Goldman employee. “So how do they have charge-off rates comparable to a subprime portfolio?”
One reason is that Goldman’s customers have been with the bank, on average, for less than two years, people with knowledge of the business told CNBC. Losses tend to be highest in the first two years of use. Another reason is that Goldman’s No. 1 credit product, the Apple Card, targeted “a broad swath of the country, including those with lower credit scores … Goldman has to play in a broader credit spectrum than other banks.”
Since the 2008 financial crisis, most banks shifted to wealthier customers.