News hit this week that Synchrony bank increased its charge-off guidance to 4.5-4.8%. This is expected, as multiple banks expect higher charge-off rates due to the change in credit cycle and deteriorating consumer trust. The “good years” of cheap credit fueled by low (and negative) interest rates seem to be over, and lenders are tightening their belts.
We see that with the unfortunate crunch in interest in Marketplace-style consumer loans, but expect the effect across multiple types of loans. Synchrony, whose portfolio skews towards lower FICO-score customers, may just be the canary in the coal mine. Shares of other large issues tumbled accordingly this week, although not to the same magnitude as Synchrony’s.