Some Goldman Sachs borrowers see FICO scores fall as coronavirus hits economy

By Elizabeth Dilts Marshall

NEW YORK (Reuters) – A greater portion of borrowers in Goldman Sachs Group Inc’s consumer business had less-than-stellar credit scores in the first quarter, indicating that the bank’s rapid expansion into Main Street lending may be hitting a bump in the road.

The percentage of customers with Goldman credit cards or loans from its online bank Marcus who had FICO scores below 660 rose to 18% as of March 31, up from 15% at the end of last year, according to a securities filing last week. A score above 670 indicates a borrower can reliably pay debts on time, while a score between 580 and 669 is shakier, according to creditcards.com.

Goldman has been careful not to grow its consumer portfolio too much in recent months, as the coronavirus pandemic shut down major economies and put millions of people out of work, executives have said. That suggests the decline in credit quality is because borrowers the bank targeted many months ago experienced some financial hardships that dinged their credit scores, said D.A. Davidson analyst David Konrad.

While Marcus remains a tiny part of Goldman Sachs, it attracts attention on Wall Street because Chief Executive David Solomon has made growing consumer deposits and lending a key pillar in his turnaround strategy for the bank.

“It will likely slow down part of (Goldman’s) transformational strategic plan, given the shock to the economy,” Konrad said.

The total balance of loans and credit card balances Goldman held was $6.9 billion at the end of the first quarter, up from $6.6 billion in the fourth quarter last year, the only two quarters for which the bank has disclosed this information.

Marcus offers a joint credit card with Apple Inc , as well as installment loans marketed for paying off credit card debt. Although the business has grown quickly since its launch in 2015, its loan book is largely uncollateralized, making it vulnerable to sharp economic downturns.

U.S. gross domestic product declined at a 4.8% annualized rate in the first quarter, the steepest pace of contraction in output since late 2008. Since March 21, some 33.5 million Americans have filed claims for unemployment benefits. Goldman’s chief financial officer, Stephen Scherr, said on a call with analysts last month that the bank will slow growth in consumer lending “as we seek to manage our risk profile and reduce the pace of origination during this period of market and economic dislocation.”

(Reporting by Elizabeth Dilts Marshall; editing by Lauren LaCapra and Leslie Adler)