Bread Financial Holdings Inc at Morgan Stanley US Financials, Payments & CRE Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jeff Addison - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>So, Perry, you come with some good news today. Thank you for saving and for our conference. Why don't we get right into it two big updates this morning. Maybe we'll start with the Saks portfolio you announced this morning. What can you tell us about that? What brought you to them, why they picked you and talk about some of the characteristics of that relationship and portfolio? Perry Beberman - Bread Financial Holdings Inc - Chief Financial Officer, Executive Vice President We're very excited to welcome Saks to the bread financial family, and they chose us to partner with. I think one of the things that resonated with them during the process was our focus on partnerships. We don't have a big branded portfolio. We're not about promoting the bread financial brand. The same way, some of these competitors are promoting our brands. And I think that really attracted Saks. You'd have to ask them exactly, but I think it was the personalization, the attention that they could see they're going to get the we would use analytics to help grow their portfolio and their track record when they spoke to some of our existing partners where some partners who have switched from other issuers to us saw a lot of success in their first year with us in terms of number of new accounts that came on and what they will receive in terms of stimulation with their portfolio. So not say they were unhappy with where they were, but clearly made the choice to come to us and we're thrilled to have them.

Question: Jeff Addison - Morgan Stanley - Analyst : And that's probably more in the co-branded higher credit quality, higher spend type portfolio.

Question: Jeff Addison - Morgan Stanley - Analyst : So what else should we expect here? What else is in the pipeline. I mean, are you now focused on trying to go after more of these higher quality opportunities or what else?

Question: Jeff Addison - Morgan Stanley - Analyst : Great. Sounds great. And the other big thing you put out this morning was the credit update for May. Looks like the delinquency formation trends look pretty positive this month. You also saw a pretty nice step down in the charge-off formation rate and maybe came in a little bit better versus the 9% you were talking about peaking out here that peak playing out and talk about maybe what you're seeing there?

Question: Jeff Addison - Morgan Stanley - Analyst : Okay. And we heard from another issuer yesterday -- card issuer that there's maybe a little bit of an uptick in minimum payers out there, there's maybe some noise and seasonality now with the tax refunds being slower than versus pre-pandemic. I think you've sort of highlighted some of this before. So maybe you could just touch upon your -- what you're seeing there and whether that's something that's change or accelerated or if it shifts still kind of in line with your expectations at this point?

Question: Jeff Addison - Morgan Stanley - Analyst : And as you think about that trajectory, obviously, this is all very macro dependent. Is there anything that you're seeing maybe in like the new vintages you're doing today versus '23, '22, '21, et cetera, that gives you a sense of how the outlook is going to shake out in late '24 or into '25 like improvement or steep stability or maybe something better?

Question: Jeff Addison - Morgan Stanley - Analyst : And then if we just take it to the consumer health and some of the spending trends, you see there. You've talked about this pullback in discretionary and big ticket spend for a bit here. And you've talked about the K economy for probably at least a year now, right REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 12, 2024 / 3:00PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley US Financials, Payments & CRE Conference We starting to see some of that show up at the retailers in recent quarters? And I guess what's your response to that? And it doesn't seem like you're seeing any further deterioration at this point than what you've talked about, but maybe just highlight the trends you're seeing maybe any sort of particular verticals of strength or weakness to.

Question: Jeff Addison - Morgan Stanley - Analyst : And where you seeing that slight uptick, maybe you're just talking about there some?

Question: Jeff Addison - Morgan Stanley - Analyst : And so it sounds like you're basically painting a picture of the consumer getting through managing. What would get you more concerned about the pullback here? I mean, what were some of the first signs you look for?

Question: Jeff Addison - Morgan Stanley - Analyst : And maybe while we're on the topic of credit sales, is there any sort of quarter-to-date trend you want to point out point out to I think there's some noise in there with BJ's from a year ago coming out. But yes anything?

Question: Jeff Addison - Morgan Stanley - Analyst : And then is there anything else you'd want to talk about for the quarter, we discussed the charge offs. I think you talked about more like an 8.8%. You talked about some weakness in them on the reversal dynamic. Maybe slightly less so because of the charge-off picture, but not too much. And then anything on expenses, maybe?

Question: Jeff Addison - Morgan Stanley - Analyst : And is that dynamic you highlighted of the lower ticket, big ticket spend impacting some of the interchange or the other revenue? Is still kind of flowing?

Question: Jeff Addison - Morgan Stanley - Analyst : Maybe we'll switch to our late fees. I guess last quarter, you lowered your estimate of that impact in the October first implementation scenario 20% versus the prior '25. Can you just remind us why you decided to lower that? Was that a result of better than expected progress with your conversations with retailers? How has that trend sort of continued into this quarter as you start to work through those on change in terms of mix and so forth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 12, 2024 / 3:00PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Addison - Morgan Stanley - Analyst : And for the larger offsets you're maybe holding off on at this point or maybe haven't fully rolled through how meaningful do you think those could be versus what you've done already? And is there a path to Bread eventually offsetting this and becoming ROA, ROE neutral and all these changes? And what's the time line like to get there?

Question: Jeff Addison - Morgan Stanley - Analyst : Well look forward to that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 12, 2024 / 3:00PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Addison - Morgan Stanley - Analyst : I'll be there in Spirit

Question: Jeff Addison - Morgan Stanley - Analyst : You next time you're at the check with my admin on the account. So I guess one other thing that's going on is there's questions about how the consumer behavior is going to be in response. That's the biggest wildcard, obviously, right possible to perfectly predict. But how has the reaction function been so far from the consumer. And you've talked a little bit about how you've looked at the soft APR caps. You've obviously had the Fed hiking rates, so that consumers already absorbed a lot of that, but you know how they react to that statement fees, are there? Is there an increase in complaints or et cetera?

Question: Jeff Addison - Morgan Stanley - Analyst : And speaking of underwriting deeper, you characterize, I think recently the underwriting change dynamic as our response to the late fee rule as a last resort, but how drastically would you need to cut back on your or enhance your standards rather than shrink your credit box in response of the late fee caps there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 12, 2024 / 3:00PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Addison - Morgan Stanley - Analyst : So I guess what I'm hearing is for those more affected retailers where there's more risk shoppers. There may be a little bit more dependent on that shopper coming in the door to the store and giving them credit access. If they want to maintain that, they're going to have to maybe share a little bit of the economics on that.

Question: Jeff Addison - Morgan Stanley - Analyst : And one response we've heard of from some retailers is they'll launch a co-brand card, try to dilute the offset the impact of late fee by going more up upstreaming the quality of that consumer and the borrower. There's only so many covering cars that can go around. I guess not everyone can have a top a law, a credit card on. So I guess what's your response to that when you hear that from some retailers?

Question: Jeff Addison - Morgan Stanley - Analyst : And if we think about more of the bull case here. Let's just pretend our August block never goes through. How should investors be thinking about the potential upside from maybe some of the offsets you've already put through as we look to '25 and '26. Are you going to maybe leave some of them may or reevaluate talk to your retailers?

Question: Jeff Addison - Morgan Stanley - Analyst : And when you were talking of Saks, they probably have a little bit less of an impact on late, can you given the quality of their shopper, but how does lead fee come up in that conversation, like where? What was the pain point there? What was the agreement there?

Question: Jeff Addison - Morgan Stanley - Analyst : And was there anything to that discussion that maybe you're noticing your peers doing differently on late fee with those to the extent you can argue about it?

Question: Jeff Addison - Morgan Stanley - Analyst : Right. Okay. And thinking of these retail partner for contracts. If we look at your existing partners, I think you have your top five locked up through 2028 and then you've got another 85% through 2025, if I have it right?

Question: Jeff Addison - Morgan Stanley - Analyst : Anything we should be aware of in the 15%. That's not locked up or anything that's in that 85% that's sitting in the '26, '27 bucket or?

Question: Jeff Addison - Morgan Stanley - Analyst : And so I think every years a couple of years, you're approved and that's good and that's good for the company and good for the shareholder. And when the partner chooses, you are just choosing to stay with you versus the partners that leave. Where are you finding the key point of differentiation is, is it is it economic?

Question: Jeff Addison - Morgan Stanley - Analyst : Okay. And if we think about deposits, you've got that goal out there of getting half your funding to the consumer direct deposit base. And I think you're still pretty close to the top of the league tables on deposit rate right now. How do you think about the trajectory of your funding costs at this point given that you still want to grow that book. But the Feds about the card and some other, your peers have started to cut their rates to them should 2Q maybe be the peak more to go there in terms of your average funding costs?

Question: Jeff Addison - Morgan Stanley - Analyst : I think the market may be disagreeing with a little bit with you today post the CPI print. So we'll have to see as that prediction comes true. You touched on expenses a little bit already on, but relative to your guidance or specific guidance, rather, you're talking about that declining low to mid-single digits this year and you already touched on some of the big drivers, but just maybe talk about that, what's driving it, what the outlook is on, how much of that is coming from just slower volumes and changes in underwriting versus actual productivity and efficiency enhancements?

Question: Jeff Addison - Morgan Stanley - Analyst : And maybe any update next week on your views of efficiency over time or over the next --?

Question: Jeff Addison - Morgan Stanley - Analyst : Okay. How much better?

Question: Jeff Addison - Morgan Stanley - Analyst : Okay. So on that topic, you've got the Investor Day next week. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 12, 2024 / 3:00PM, BFH.N - Bread Financial Holdings Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Addison - Morgan Stanley - Analyst : You will --

Question: Jeff Addison - Morgan Stanley - Analyst : Yes, you just got to give me exactly everything. I know Brian said is we're going to, yes. So what should we expect?

Question: Jeff Addison - Morgan Stanley - Analyst : Okay. And maybe something on capital return. I mean, I know, yes, there's you know, some CG. one seems improved a lot, but there's Tier one Tier two opportunities there as well on. Okay. And then anything else in the quarter that we missed so far that?

Question: Jeff Addison - Morgan Stanley - Analyst : Yes, let's talk about that. So what you're going to do?

Question: Jeff Addison - Morgan Stanley - Analyst : Okay. I think that's all the time we have for today. Thank you, Perry, for joining us on and sounds like you have some really nice things going to the business right now. So we're looking forward to catching up and good luck with the investor day next.

Question: Jeff Addison - Morgan Stanley - Analyst : Yes, I hope so.