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Synchrony Financial’s Weak Earnings Cast Cloud on Credit Card Lendersa

Synchrony Financial’s net income of $499 million in the first quarter of this year versus $582 million last year is raising doubts about the health of the credit card lending environment in the United States. Synchrony was formerly a part of GE Capital and partners with retailers to extend credit to consumers on a retail-branded credit card.

Synchrony reported that the percentage of loans more than 30 days delinquent rose to 4.25% from 3.85% last year and the rate of charge-offs increased from 4.74% to 5.33%. The allowance for loan losses swelled to 6.37% of loans versus 5.50% last year. Synchrony explained the increase as a normalizing in the credit market as well as a shift in the retailers they lend for. Many analysts have also pointed to a weak tax return season in the first quarter.

Aggregate information from the Federal Reserve is only available through the fourth quarter of last year but also suggests that delinquencies are rising from historically low levels.

 

 

 

 

 

 

 

 

 

 

 

 

Consumers are also taking on more debt, as the amount of credit card loans outstanding is now about even with the pre-financial crisis level of about $1 trillion.

 

 

 

 

 

 

 

 

 

 

 

 

Fellow retail lender Alliance Data Systems also pointed to higher losses in its first quarter report, with the loss rate increasing from 5.2% to 6.3% and the delinquency rate increasing to 4.8% from 4.3%. Even American Express, which caters to wealthier clients, reported a first quarter increases in its charge-offs from 1.5% to 1.7%.

 

 

 

 

 

 

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