Synchrony Financial at Morgan Stanley US Financials, Payments & CRE Conference Transcript

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

Question: Jeff Adelson - Morgan Stanley - Analyst : So Brian, maybe we could just start. It looks like you put out your May credit 8-K this morning. You did talk about how the credit was going to peak this month, or last month rather, and you saw that sequential improvement. It looks like delinquencies did slow this month as well. Anything else you want to talk about or just dive into anything else you want to give us on the quarter as well?

Question: Jeff Adelson - Morgan Stanley - Analyst : And what are you seeing from the consumer? You spoke about consumer resilience before, how they're managing spend, trading down a bit. You also last week did note that retail traffic is trending lower, spend is more flattish. What do you think is driving this at this point?

Question: Jeff Adelson - Morgan Stanley - Analyst : And what metrics, as you think about this normalization that's happening here, the slowing. What metrics do you think are most relevant when you're trying to assess the health of the consumer? And at what point would you become more concerned that these patterns we're seeing of sort of consolidation are shifting more towards deterioration if that happens?

Question: Jeff Adelson - Morgan Stanley - Analyst : And I think you recently mentioned that you're seeing the middle income consumer or household, and even business is starting to maybe struggle a little bit. Are you seeing that spread from low income more recently? Or is that more of a consistent trend with what you've seen this past year? .

Question: Jeff Adelson - Morgan Stanley - Analyst : And sort of related to today's result was better, obviously, for your credit story. You saw the peak last month. But I think the delinquencies more recently had not been slowing as much as maybe your peers have been seeing. You were starting to underperform seasonality. Obviously, this morning's results different, but what do you think was driving some of that? What are you may be seeing from your borrowers? Or can you just kind of high level, give us some insight there?

Question: Jeff Adelson - Morgan Stanley - Analyst : Got it. And I think you also noted more recently that you're thinking the reserve ratio should be more flat this quarter. Maybe not decline as much in the back half of the year either, but you're still looking towards day 1 as an ultimate goal here. What is baked into that flattish reserve over the next 6 to 12 months? And then what would have to happen in either the delinquency formation or the loss formation for you to actually grow more confident in a sharper decline from here?

Question: Jeff Adelson - Morgan Stanley - Analyst : And just one last one for me on credit. So losses lower in the back half of the year, peak this past month. What about the vintage data? Is there anything way to thinking about the stack rank of the various vintages and what that tells you about how we're heading into 2025? Is this support more of a stabilization or maybe more outright improvement, you think, at this point?

Question: Jeff Adelson - Morgan Stanley - Analyst : In the underperforming vintage comment, that's relative to what period? Sorry. .

Question: Jeff Adelson - Morgan Stanley - Analyst : Okay. Got it. Maybe switching gears here a bit. And if anyone has any questions, feel free to raise your hand at any point in time, happy to ask your questions. And if you want to also e-mail me as well, I'll try to get to your question, if I can see it on my phone. But maybe switching to everybody's favorite topic, late fees. Lots of drama in the courts recently. We don't need to relitigate that, no pun intended. But maybe just a quick overview of your latest one, where you see things at this point, how they're shaking out. And maybe just a quick update on the $650 million to $700 million of offsets you put out there, how much of that is actually in the numbers yet? I know you said the bulk of that is going to hit in the fourth quarter, but just maybe give us an update on how you see that cadence sort of playing out over the rest of the year?

Question: Jeff Adelson - Morgan Stanley - Analyst : So you're pleased with the progress. You're monitoring the complaints. What has the initial customer response been so far? Could you maybe give us examples or how you're thinking about that so far?

Question: Jeff Adelson - Morgan Stanley - Analyst : And if the late fee rule does go through, obviously, there's underwriting changes in play here. How meaningful of a cut would you take to your standards there? Or how dramatically would you increase those standards, raise those? Is this something like cutting off the bottom 20%? Do you think about shifting the long-term target NCO from something like below the 5.5 to 6 you have today? Walk us through how you think about that.

Question: Jeff Adelson - Morgan Stanley - Analyst : And just maybe thinking about the other side of that, late fee rule doesn't go through, maybe a little bit more of a bull case for you. How much of these offsets you've run through do you think actually stay in the run rate, or do you pull anything back or?

Question: Jeff Adelson - Morgan Stanley - Analyst : Okay. So the changes go through, and then sort of in the retailers' hands is what I'm hearing about.

Question: Jeff Adelson - Morgan Stanley - Analyst : I'm just going to pause to see if there's any questions from the audience. Looks like not. If not, I'll move on. So speaking of the partnerships, you've got the renewals out there every so often. Are you noticing any sort of increased or lower competitive intensity in RFPs out there? And then as I think about your book, I think the last big one we saw renewed was Lowe's in 2022, but the other big 4, maybe 4 to 5 years ago. Maybe just a quick update on how your conversations have been going broadly?

Question: Jeff Adelson - Morgan Stanley - Analyst : And then I think we have a couple of large retailers out there maybe with some portfolios influx, any sort of interest from Synchrony always in the mix, or thoughts there?

Question: Jeff Adelson - Morgan Stanley - Analyst : And speaking of newer business verticals, I don't know if we'd characterize it as a new vertical per se, but there's been a little bit more of a focus on BNPL out there from the media, the regulators on risks in that space. You've got an offering, more of a feature, and a part of your multiproduct approach than a leading product, I would say, but are you noticing any sort of pockets of difficulty from those users, whether it be your own, or what you're seeing from your own cardholders with BNPL loans elsewhere? Any high-level thoughts there?

Question: Jeff Adelson - Morgan Stanley - Analyst : So part of multiproduct approach, but it doesn't sound like it's a leading part of the conversation. It doesn't come up much in the conversations, or is it always a part of the conversation, you would say?

Question: Jeff Adelson - Morgan Stanley - Analyst : Maybe just switching to capital here. You submitted your capital plan to the Fed earlier this year, and I think you're now at the lowest level of CET1 you've ever been, but you're still in an excess position at this point. You built up some pref in the stock as well. How are you thinking about the excess capital position here? Is that something maybe where you want to wait until we get more clarity on the capital rules from the regulators, more clarity on the credit picture, or maybe until you officially hit that CCAR bucket in 2026?

Question: Jeff Adelson - Morgan Stanley - Analyst : All right. Well, I think we're just about out of time. Thank you, Brian, for coming today, and it was a pleasure to have you.