Synchrony Drops on Card Losses That Burned Citi, Capital One

(Bloomberg) -- Synchrony Financial tumbled the most in the S&P 500 Index after the issuer of private-label credit cards set aside more money for soured loans in the first quarter than analysts expected.

Shares of the lender fell 16 percent to close at $27.80 in New York, the most since the firm separated from General Electric Co. in 2014. The stock has dropped 23 percent this year, the most in the 65-company S&P 500 Financials Index.

Provisions for loan losses surged 21 percent to $1.3 billion compared with the prior quarter, the Stamford, Connecticut-based firm said Friday in a statement. That exceeded the $1 billion average estimate of analysts surveyed by Bloomberg. Synchrony’s write-off rate climbed to 5.03 percent, the highest since at least 2012, according to presentations posted on the firm’s website.

Capital One Financial Corp., Citigroup Inc. and Discover Financial Services also reported a jump in bad credit-card loans last quarter, drawing concern from analysts and investors about consumer credit quality. Federal Reserve data show revolving credit, primarily card balances, increased by $2.92 billion to $1 trillion in February, the highest level since the financial crisis.

“The miss this quarter was primarily on higher provisions and worse credit quality than expected,” Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods, said in a note to investors. “Synchrony adds to the list of card issuers posting weaker provisions, but this coverage increase seems to be more outpaced relative to the rest.”

See also: Synchrony cut to neutral from buy at Goldman

Synchrony expects the write-off rate for the full year to be 5 percent or slightly higher, compared with an earlier forecast of 4.75 percent to 5 percent, Chief Financial Officer Brian Doubles said on a call with analysts.

First-quarter net income dropped 14 percent from a year earlier to $499 million, or 61 cents a share, Synchrony said, missing analysts’ 73-cent average estimate.

To contact the reporters on this story: Jenny Surane in New York at jsurane4@bloomberg.net, Felice Maranz in New York at fmaranz@bloomberg.net.

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Steven Crabill, Dan Kraut