The credit card issuer Synchrony Financial says it expects its losses from unpaid consumer debts to peak by July, an encouraging outlook for observers fretting over looming economic stress.
The company did charge off more loans in the fourth quarter of 2023 than it has in the past three years, when pandemic-era savings and stimulus funds helped cardholders stay current on their loans.
But losses appear to be simply returning to normal, pre-pandemic levels at Stamford, Connecticut-based Synchrony — rather than getting worse. The stock price of one Synchrony competitor, Discover Financial Services,
On Tuesday, Synchrony Chief Financial Officer Brian Wenzel said that his company is monitoring its portfolio carefully and is still "cautiously optimistic" about borrowers' financial standing.
"Overall, we see the consumer remaining resilient," Wenzel told analysts on Synchrony's fourth-quarter earnings call.
Synchrony did become more "prudent" in its underwriting over the past year, Wenzel said, as a more uncertain economic outlook prompted it to take a more cautious approach.
Critically, he added, Synchrony "didn't really adjust the credit box" during the pandemic and avoided loosening its underwriting when credit conditions were solid. Other lenders are "paying a price" for loosening their underwriting criteria, Wenzel said, without naming any specific companies.
Synchrony did report a significant jump in net charge-offs during the fourth quarter. They rose to 5.58%, up from 3.48% a year earlier.
But charge-off levels were just a touch above their 2017-2019 average between of 5.49%, Synchrony executives said. The company's guidance for the rest of 2024 suggests that executives don't see things getting much worse, with full-year charge-offs staying below 6% and peaking in the first half of the year.
The $117.5-billion asset company's stock price dipped a bit despite the positive outlook, with shares falling 0.87% to $37.44.
The stock price decline reflects skepticism among investors that the credit picture will be as benign as Synchrony expects, Stephens analyst Vincent Caintic wrote in a note to clients. Credit quality remains the "primary investor concern," Caintic wrote, adding that Synchrony's relatively upbeat outlook is a "show-me story."
The company's loans have held up "better than we expected," Wolfe Research analyst Bill Carcache wrote in a note to clients. But in today's environment, investors can't be "overly bearish on credit," since even a mild recession would prompt more stress, he wrote.
Carcache also flagged a key risk for Synchrony: the Consumer Financial Protection Bureau's
Analysts have noted that Synchrony's late-fee income is relatively high compared with other card companies.
"While we view SYF as an astute manager of credit risk and are bullish on its longer-term outlook, we maintain a relatively more cautious near-term stance based on its outsized late-fee exposure," Carcache wrote, referring to Synchrony's stock ticker.
Synchrony executives have
Synchrony, which expects the CFPB to publish its final rule in the coming weeks, has "done a lot of work in preparation" for sharply lower late fees, Doubles said. Those steps include talking to merchant partners about ways to rework their credit card partnerships and adjust pricing to avoid cutting consumers off from credit.
"The conversations with our partners have been very constructive," Doubles said. "They fully recognize that without these offsets, that a meaningful portion of their customers that we approve today and that we underwrite and give credit to would no longer have access to credit. And that's something clearly we do not want, they do not want."
