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.
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.
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