US-ECONOMY-LENDING CLUB...Lending Club banners hang on the facade of the New York Stock Exchange for it's IPO on December 11, 2014 in New York.  Lending Club started trading on the NYSE at a high $24.75 USD per share. AFP PHOTO/DON EMMERT        (Photo credit should read DON EMMERT/AFP/Getty Images)
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On the fringes of a prospering US economy, perhaps things may not be so rosy. One indication: Donald Trump’s surprise election victory on Tuesday night.

But another one may be the prospects for listed consumer lenders — OneMain Holdings, Santander Consumer, Synchrony Financial, Lending Club — whose share prices are down so far this year.

On election day, OneMain, the leading outfit making unsecured personal loans via branches, saw its shares crash 40 per cent after a poor 2017 forecast.

There is little sign of a recession, but it will not take much of a downdraft to sting those companies that have exploited the economic and credit expansion of recent years.

Overall, household debt remains below its 2008 peak. But that belies an explosion of credit card borrowing, student loans, and ordinary consumer debt. Returns on equity for the institutions that advance these loans can approach 20 per cent.

However, profitability hinges on managing bad debt while still growing overall balances. OneMain tumbled because it said delinquencies would rise in 2017 as it integrates a substantial acquisition.

Similarly, internet-based Lending Club nudged up the rates it charges riskier borrowers in response to heightened losses. Such worries have also plagued subprime motor lender Santander Consumer.

The listed lenders all make the same noises about high underwriting standards and avoiding the worst credit risks.

But supply is growing: OneMain’s chief noted that the availability of unsecured credit is “the greatest it has been in recent years”, citing credit card companies. At the same time, Goldman Sachs has just entered the consumer loan game with its Marcus product.

The sector has rallied since Tuesday, on hopes that higher long-term interest rates will boost profits, and that regulatory oversight might be looser in future.

The prospect of impending fiscal stimulus has excited equity investors, too. But this is an economy that has not sniffed inflation or a recession in years, either.

What appears on the fringes can encroach much faster than imagined. Just look at Mr Trump.

Email the Lex team at lex@ft.com

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