By Telis Demos

Shares of card lender Synchrony Financial were down sharply following its earnings report on Tuesday. The company told analysts that "customers remain selective in their spending behavior."

Synchrony shares were off by more than 6.5% midday, on track for their worst one-day decline since August.

Synchrony executives told analysts that its customers in the fourth quarter were seen to "generally prioritize non-discretionary and seasonal holiday items." That included moderating outlays on "bigger ticket" items and in non-essential categories, such as furniture, electronics, cosmetics and outdoor goods.

The company said it sees "low single-digit" percentage growth in its loan receivables by the end of 2025. Synchrony also said that its recent tightening of its underwriting would continue to play a role. Many lenders have tightened their own belts following a jump in credit losses from loans made during the pandemic, when consumers were unusually flush.

Executives said they expect "purchase volume and new account growth to continue to reflect the impacts of our credit actions and selective customer spend behavior."

Also on Tuesday, CreditGauge reported that its tracking showed average credit-card balances grew 2.9% in December from the same month a year prior, which was roughly in-line with the annualized rate of inflation. "This indicates cautious credit usage by consumers looking to plug the hole in their wallets left by inflation," CreditGauge said in an email. CreditGauge, a product of VantageScore, reflects credit-file data from the three major credit bureaus.

From a consumer financial health point of view, this can be good news. Earnings reports tracked by analysts at Morgan Stanley showed that the median year-over-year increase in the fourth-quarter card delinquency rate was just 0.02 percentage point over last year in the fourth quarter, versus a more than quarter-point year-over-year rise in the third quarter.

But it isn't necessarily a good sign for lenders. For them, higher delinquencies can even be offset if there is tons of spending and borrowing going on. Instead, if loan growth stays muted, banks will see pressure on their revenue even if people pay their debts.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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(END) Dow Jones Newswires

January 28, 2025 12:28 ET (17:28 GMT)

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