- 14th August 2019
- Posted by: Hakeem
- Categories: Innovation, INVESTMENT, Technology
- The Apple Card from Goldman Sachs will be “highly sensitive” to rising net charge offs, and thanks to thin margins, the bank will start to lose money if losses reach about 8%, according to analysts led by Bill Carcache.
- “We would expect Goldman Sachs to face its fair share of volatility in the next recession,” Carcache wrote.
- Up next for Goldman and Apple could be a joint debit card, the analyst speculated.
Goldman Sachs may get stung by rising loan losses on the Apple Card in the next economic downturn, according to Nomura analysts.
The much-hyped credit card, which Goldman began to make available last week, has no fees, the industry’s lowest interest rate range for comparable cards, and a mandate to approve as many iPhone users as possible, according to a report published Wednesday from analysts led by Bill Carcache.
That leads Carcache to one conclusion: “The Apple Card portfolio may generate lower revenues and face higher loss content relative to the industry average,” he wrote.
In his analysis, which assumes that Goldman spends $350 to acquire each new user, the bank will begin to break even on a customer after four years.
The problem is, the U.S. economy might stall before that. A widely-watched bond market metric is flashing a recession warning amid a global economic slowdown, and bank stocks were hammered Wednesday on the prospect of rising loan losses and tighter profit margins. Recessions typically occur an average of 22 months after the yield curve inverts, according to Credit Suisse.
Goldman’s product is “highly sensitive” to rising net charge offs, and the bank will begin to lose money if losses reach about 8%, Carcache wrote. In the last recession, net charge offs surged in 2008 and peaked at above 10% in 2010. Goldman declined to comment on the research note.