Consumer Lending Stocks

About Consumer Lending Stocks

These stocks are perpetually cheap and periodically catastrophic, and both facts have the same cause. A consumer lender earns a wide spread in good times and the losses arrive all at once when employment turns. The market knows this, prices in a low multiple, and is right often enough that the discount never really closes.

Watch credit, not growth. Charge-off rates and delinquencies tell you where you are in the cycle far earlier than loan growth does, and a lender writing lots of new business late in a cycle is usually taking customers everyone else declined. Rising loan books at the top are a warning rather than a result.

Mortgage lenders are a separate exposure and behave almost opposite to the rest. They originate and sell loans on rather than holding them, so their volume collapses when rates rise and floods back when rates fall. The servicing side moves the other way, gaining value as rates rise because nobody refinances. It is one of the few genuinely hedged structures in the sector, which is why mortgage names should not be lumped in with card issuers.

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