Synchrony Warning Slumps Credit Card Issuer Stocks

One default, many defaults, a whole flood of defaults.

Synchrony Financial issued a warning about chargeoff rates it sees in its own portfolio, with a guided range that was ratcheted higher and that hit investors, who fled the sector on Tuesday (June 14).

The range was guided higher from a chargeoff rate of 4.3 percent to 4.5 percent earlier this year and now stands at 4.5 percent to 4.8 percent. The chargeoffs were already on the rise into the first quarter, and yet, the news this week seemed to shock The Street, noted The Wall Street Journal. The result was that Synchrony’s stock was off 14 percent during intraday trading. Capital One and Discover were falling at more tempered rates, in the low to mid single digit percent ranges.

WSJ noted that Synchrony issues branded credit cards, among them with customers as large as Walmart, and those cards skew to riskier borrowers. The company’s own credit card book went to those with FICO scores of 660 or less 28 percent of the time. That is more than 10 percentage points higher than JPMorgan and Discover. However, the Capital One portfolio had 35 percent of its book at levels below that 660 cutoff. Other signs have been glimmering, as banking titan Jamie Dimon noted recently that auto loans were seeing some pressure. The Synchrony management team was quoted as stating that auto and credit loans were at least partly to blame in pinching the debt-paying ability of U.S. consumers.