How private equity firms make money offering loans to cash-strapped Americans

Continued from Part I which posted last week!!!

The company declined to discuss the affiliated offshore company that handles insurance, citing competitive reasons. Mariner sells insurance policies that are supposed to cover a borrower’s loan payments in case of various mishaps — death, accident, unemployment and the like.

“It is not our duty to explain to reporters . . . why companies make decisions to locate entities in different jurisdictions,” Morton wrote.

Through a Warburg Pincus spokesman, Geithner, the company president, declined to comment. So did other Warburg Pincus officials. Instead, through spokeswoman Mary Armstrong, the firm issued a statement:

“Mariner Finance delivers a valuable service to hundreds of thousands of Americans who have limited access to consumer credit,” it says. “Mariner is licensed, regulated, and in good standing, in all states in which it operates and its operations are subject to frequent examination by state regulators. Mariner’s products are transparent with clear disclosure and Mariner proactively educates its customers in every step of the process.”

Equity firms’ stakes:

Over the past decade or so, private equity firms, which pool money from investment funds and wealthy individuals to buy up and manage companies for eventual resale, have taken stakes in companies that offer loans to people who lack access to banks and traditional credit cards.

Some private equity firms have bought up payday lenders. Today, prominent brands in that field, such as Money Mart, Speedy Cash, ACE Cash Express and the Check Cashing Store, are owned by private equity funds.

Other private equity firms have taken stakes in “consumer installment” lenders, such as Mariner, and these offer slightly larger loans — from about $1,000 to more than $25,000 — for longer periods of time.

Today, three of the largest companies in consumer installment lending are owned to a significant extent by private equity funds — Mariner is owned by Warburg Pincus; Lendmark Financial Services is held by the Blackstone Group, which is led by billionaire Stephen Schwarzman; and a portion of OneMain Financial is slated to be purchased by Apollo Global, led by billionaire Leon Black, and Varde Partners.

These lending companies have undergone significant growth in recent years. To raise more money to lend, they have sold bonds on Wall Street.

“Some of the largest private equity firms today are supercharging the payday and subprime lending industries,” said Jim Baker of the Private Equity Stakeholder Project, a nonprofit organization that has criticized the industry. In most cases, “you’ve got billionaires extracting wealth from working people.”

Exactly how much Mariner Finance and Warburg Pincus are making is difficult to know.

Mariner Finance said that the company earns a 2.6 percent rate of “return on assets,” a performance measure commonly used for lenders that measures profits as a percentage of total assets. Officials declined to share financial statements that would provide context for that number, however. Banks typically earn about a 1 percent return on assets, but other consumer installment lenders have earned more.

The financial statements obtained show “Mariner Finance LLC” indicating ample profits. Those financial statements have limitations: “Mariner Finance LLC” is one of several Mariner entities; the statements cover only the first nine months of 2017; and they don’t include the Mariner insurance affiliate in Turks and Caicos.

The “Mariner Finance LLC” documents show a net profit before income taxes of $34 million; retained earnings, which include those of past years, of $145 million; and assets totaling $561 million. Two independent accountants who reviewed the documents said the figures suggest a strong financial performance.

“They are not hurting at least in terms of their profits,” said Kurt Schulzke, a professor of accounting and business law at Kennesaw State University, who reviewed the documents. “They’ve probably been doing pretty well.”

 

This second Part of the predatory lenders story is very interesting because it tell the horrible story of how these robber barons consistently take advantage of those less fortunate in their most vulnerable positions for profit that only makes them richer. How much money is enough??? When you cause suffering!!!