Goldman’s Apple Card business has a surprising subprime problem

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The weakest American borrowers are starting to miss payments and default on their loans, and that is showing up at a surprising place: Goldman Sachs.

While competitors like Bank of America enjoy repayment rates at or near record levels, Goldman's loss rate on credit card loans hit 2.93% 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.

The profile of Goldman's card customers actually resembles that of issuers known for their subprime offerings. More than a quarter of Goldman's card loans have gone to customers with FICO scores below 660, according to filings. That could expose the bank to higher losses if the economy experiences a downturn, as is expected by many forecasters.

«People are losing their jobs and you had inflation at 40-year highs; that will impact the subprime cohort more because they are living paycheck to paycheck,» Michael Taiano, a senior director at Fitch Ratings, said in an interview. «With Goldman the question will be, were they growing too fast into a late cycle period?»

The dynamic comes at a sensitive time for CEO David Solomon. Under pressure to improve the bank's stock price, Goldman's money-losing consumer operations have drawn headlines and the ire of some investors and insiders. The investment bank began its foray into consumer finance in 2016 to diversify from its traditional strengths of Wall Street trading and advisory activities.

But the journey has been a bumpy one, marked by leadership turnover and staff departures, missed product deadlines, confusion over branding, a regulatory probe and mounting losses.

Solomon will likely face questions from directors about the consumer