Credit Card Company's Loss Forecast Worries Investors

Synchrony Financial has increased its expected losses, causing concern about credit card debt

Credit Card Company's Loss Forecast Worries Investors
June 15, 2016

With Synchrony Financial changing its anticipated credit losses for the rest of 2016, some investors are wondering if another round of payment defaults and delinquencies is about to hit. Many firms are concerned that auto loans, student loans, and credit cards are starting to weaken, indicating that more losses for lenders could be on the horizon.

As the largest creditor for retail-store credit, Synchrony Financial's status can be seen as a reflection of the market as a whole. The company's increase in anticipated losses was not major, going from 0.2 percentage points to 0.3, but it was enough to give investors pause for thought. The end result was that the company's stock dropped by 13 percent. Other credit card companies, including Capital One, also saw stock decreases.

Synchrony Financial Chief Financial Officer Brian Doubles told investors that the company had anticipated this, although they were not certain when the downslide would begin. With more customers unable to make up payments once they fall behind, the company was forced to amend its expected losses.

Overall, credit card defaults have begun to increase in the past several months, a change in direction since April 2010. While defaults had been mostly steady or declining, January through April 2016 saw a four-month streak of increases. Consumer spending continues to remain strong with increased sales in May, but many anticipate this could change as credit quality continues to weaken.

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