Writer: Lucy Lazarony
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
- JPMorgan Chase has reached a deal with Goldman Sachs to take over the Apple Card portfolio at a discount of more than $1 billion.
- The deal is seen by some as a win-win-win for all parties.
- JPMorgan Chase is expected to handle Apple Card subprime accounts by reducing their credit lines and asking some customers to leave the program.
JPMorgan Chase is taking over the Apple credit card from Goldman Sachs, including the credit card’s subprime accounts.
The move leaves questions yet to be answered, including whether the acquisition means JPMorgan Chase is assuming a new subprime direction as a card issuer or if it plans to take steps to clean up the Apple Card portfolio by eliminating accounts of customers with poor payment habits.
Much will be determined when JPMorgan Chase takes over Apple Card customer accounts in about two years. Tony DeSanctis, senior director at Cornerstone Advisors, told us he expects JPMorgan Chase will make changes to the Apple Card credit portfolio.
“The portfolio is going to take some work,” DeSanctis said. “Chase has the team to do it, so they’ll fix it.”
Inside the New Apple Card Deal
According to the deal, JPMorgan Chase will acquire more than $20 billion in card loans from Goldman Sachs.
The Apple Card deal will take about 24 months to close, and JPMorgan Chase is taking over the portfolio for Apple Card at a discount of more than $1 billion, according to CNBC.
This credit portfolio includes more subprime borrowers and borrowers with lower credit scores than is typical for JPMorgan Chase.
A Win for All Involved?
Paul Davies from Bloomberg classified the Apple deal as a win-win-win for Goldman Sachs, Apple, and JPMorgan Chase in his opinion column on Jan. 8.
“It’s a good result for all three firms — Goldman escapes its error-strewn foray into consumer finance, Apple gets a partnership with America’s best-run bank, and JPMorgan wins some useful growth in the form of a $20 billion book of card loans,” Davies wrote.
What Happened at Goldman Sachs
In 2019, Goldman Sachs beat out competitors such as American Express, Synchrony and Barclays to become the card issuer for the Apple Card. As the original issuer of the Apple Card, Goldman Sachs struggled with the underwriting of the card portfolio.
“In the credit card business in general, right, it’s all about risk adjusted margin. And so you have to be very deliberate and very thoughtful about your underwriting specifically, but also your sales strategy,” DeSanctis said.
“The sales strategy was never a challenge. It’s the underwriting that ultimately I think sort of bit them in the backside if you will.”
How JPMorgan Chase Will Handle Subprime Accounts
JPMorgan Chase is expected to take steps to better manage subprime accounts with the Apple Card with some customers being asked to leave the Apple Card program.
“There’ll be line reductions, there’ll be closures. I mean, obviously, I’m sure Apple’s gotten them to agree to certain thresholds and criteria and ensure that the customer experience is minimally impacted,” DeSanctis said.
The Bottom Line
In two years time, the Apple Card will have a new issuer JPMorgan Chase. The Apple Card has more subprime customers than is usual for JPMorgan Chase, and it is expected that some customers will be asked to leave or have their credit lines reduced.
