Apple Card responsible for more than $1.2B loss for Goldman Sachs | Hacker News Reader

Apple Card responsible for more than $1.2B loss for Goldman Sachs

9to5mac.com

49 pointssamspenc21 comments

> The main cause of the losses is said to be from loan-loss provisions (when a bank sets aside money as an expense for future loans it expects won’t be repaid).

So no actual losses, and a year from now when those losses don't appear, they will record a magic billion dollar profit.

Seems to be? Calling it a "loss" is more of an accounting viewpoint (holding reserves to offset possible loses lowering revenue) than what laymen would view as a "loss".

But then again, the amount of reserves held is supposed to be a best estimate of actual losses that will be incurred with bad debt.

Loan loss provisions cost actual real profit though because they cause the bank to hold more risk capital reserves, which basically means some of their capital is dry powder and isn't generating returns. The difference between their expected rate of return on risk capital and the risk free rate (which you could see as "opportunity cost of capital" basically) is lost for this amount.

How exactly would you propose the accounting be done for loans? Should a bank realize a loss equal to the amount of loan at the time the loan is made, and then consider all future payments as profit?

(Clearly not)

but if a loan is collateralized, the bank can consider the loan an asset, since the collateral will make the loan whole if the borrower defaults.

But for credit cards, which usually is not collateralized, you cannot do that. Therefore, it makes sense to recognize the cost of loan-loss provisions as a cost.

Good point, my comment was only relevant for uncollateralized loans.

i really don't understand where the losses are coming from here. who is giving money to whom? and why isn't that clearer in an article about it?

> The main cause of the losses is said to be from loan-loss provisions (when a bank sets aside money as an expense for future loans it expects won’t be repaid).

That is, credit is being extended to people who will not pay it back, resulting in (at the moment presumably x% hypothetical) losses for the bank.

That's interesting. So if I set aside capital for loan losses, I get to claim that as a real loss right now and reduce my profit? So my tax bill goes down.

If later on it turns out those loans really are repaid, do I then owe back taxes because I didn't actually lose money?

This is really interesting, I wonder why loan-loss provisions are treated like this. Maybe to discourage making bad loans on purpose to juice earnings or something.

I don't think you can claim a loss when the reduction in revenue is due to a reserve. But I'm not a tax lawyer, circumstances may vary, yadda yadda.

Accrual of Reserves for Estimated Expenses

Although reserves for contingent liabilities are often set up in business practice, amounts credited to reserves are generally not deductible for income tax purposes because the fact of liability is not fixed ( Portland Copper & Tank Works, Inc., CA-1, 65-2 ustc ¶9687). For example, advance deductions have been denied for additions to a reserve for expected cash discounts on outstanding receivables, amounts credited by a manufacturer to a reserve for possible future warranty service, and additions to a reserve covering estimated liability of a carrier for tort claims. However, to the extent that the Code specifically provides for a deduction for a reserve for estimated expenses, the economic performance rules ( ¶1540) do not apply ( Code Sec. 461(h)(5)).

https://answerconnect.cch.com/contents-document/mtg012e61a34...

1) hard to say 2) because it’s 9toMac, they are a low quality blog and their writers know absolutely nothing about business reporting.

Also, the take is plainly wrong. The reason why Apple Card hasn’t expanded overseas is most likely that the rest of the Western world is not so deeply entrenched in a credit-debt system of personal financing like the US, so most of the other credit card markets are not really relevant enough for Apple to make an expensive move in internationalizing credit cards. In Europe, for example, you can’t pay many big expenses like your rent with a credit card, it’s all bank transfer based (which is why we have SEPA and modern zero-fee instant banking transfer technology now).

Some eye-opening stats showing why Apple Card might never leave the US:

https://www.spendesk.com/en-eu/blog/credit-card-statistics/

Paying rent with a credit or debit card is uncommon in the USA as credit carries a percentage surcharge and debit is a fee as well.

ACH or check is coming for rent or mortgage payment.

https://www.biltrewards.com/ Don’t worry, there’s a credit card for that too

They are paying Apple $350 to acquire every new Apple Card customer.

Article seems weak but Apple Card does not sync to personal finance packages so at least for some users a no go. I’d guess impact is small but I’d imagine users paying attention to spend might have stronger credit?

The ads I see for the Apple Card are about rebuilding my credit.

Garbage article.

Classic Apple: they weren't sure whether a card would be a good idea or not so they did it in a way that shifted a lot of the risk onto someone else (who could handle it) and kept the part good for them.

Or mayyybeeee since credit cards come with a whole mountain of regulations that can only be offered by financial institutions, just like every other retailer that has a branded card (Walmart, Amazon, Target), they decided to partner with a real bank?

But no, we'll go with your blind anti-Apple conspiracy.

Hey, that was intended as a pro-apple analysis.

The JPM deal was widely reported and isn't the same as the usual branded cards. I think Apple played them well, as so they should have.

> The JPM deal was widely reported and isn't the same as the usual branded cards

What JPM deal? Do you mean the Goldman deal?

Yes, my error. Fortunately I can’t edit my comment any more so that error will live on in infamy.

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