All right. Hello again, everybody. Super excited to have Brian Wenzel, CFO of Synchrony.
Great, Erika. I appreciate the invite and being here in Miami.
Absolutely. So given your purview and your business, let's get started, maybe with the line of questioning with the consumer. So we saw your January card data two weeks ago, and for now, it still seems like the economy is set up for a soft landing. How would you describe the state of the consumer today, and are things relatively stable versus where they were at the end of last year?
Yeah, so, you know, I'm gonna use one of the terms that's probably most, most used and abused right now. The consumer is resilient in total.
Mm-hmm.
As we talked about, there's always this, you know, where we view a K-shaped recovery. So folks at the higher end, credit and income doing better than some of the ones who are either prime to non-prime, and that really hasn't changed as we entered into the first couple of months. If I was to give you a little bit of color on the consumer here, kinda two months in, so let me just talk about spending. I think when we were at our fourth quarter earnings in January, one of the things that we noticed was sales were a little bit slower, right, in the first part of, you know, first couple weeks of January. As we dissected that, I don't wanna sound like a retailer, but there was a big weather.
We looked at geography. The weather events did have a play with regard to that. So what we saw really into the back half of January and now through, you know, I'll call it, you know, second or third week of February, has been a better trend than I think the beginning part, but I would still say a little bit slower than our anticipation and what we'd see on a year-over-year basis. If you break that down a little bit further, one of the things you're seeing is that some of the larger tickets, so particularly in our home and auto, furniture, that's slower. Home specialty is still doing incredibly well for us, which is great.
If you look at lifestyle, again, the bigger ticket outside of outdoor, we're seeing a little bit of pressure year- over- year on volume, as people kinda rotate. When you look at the where they're spending, right, so we saw a slowdown in travel. That picked up a little bit in January as we kinda pulled in, but we still see restaurant, entertainment coming lower, clothing coming lower. So there's some interesting trends. When we look at that then by credit grade, probably a little bit more pressure in the prime, the 720 and below.
Mm.
But when you look at frequency, it's all, you know, fairly much in line except for non-prime. So I think the consumer's kinda being resilient as you think about that for a second. If I just take it a step further, because I know you're going to get to it at one point, but just wrap the other piece together. When you look at credit, right, which is the other angle, and I know a lot of folks are thinking about credit, you know, we're probably through 24 cycles in February. I think what we would think about is on a dollar basis, $30+ to be flattish to January, which I think from a trend perspective, you know, bodes well. But that's what you want to see relative to how we thought about the charge-off.
So I think, you know, overall, credit's kinda, you know, in line, you know, sales a little bit softer. The last thing I'd say is when you go to payments, the payment rate has been a little bit slower. So I think from the asset standpoint, the asset holds in there, but just got there a slightly different way so far in the first couple of months of the year.
So speaking of credit, you know, back in January, for charge-offs, you did lay out an expectation for 5.75%-6% this year, and the upper half of your long-term range, with the peak in the first half of the year. Can you help us unpack a little bit what gives you confidence? And, you know, you mentioned the DQ, the dollar DQs-
Sure
... to get to that first-half peak.
Sure. You know, first, Erika, you know, I really want to take a step back and talk about how we got here. First of all, we don't... As you know, and we talked about this quite often, we don't accordion the credit box, so, so we don't use credit to expand growth or, or really contract.
Right.
We usually manage to a combined company loss rate and a risk-adjusted return. So as we kinda went through and exited out of the pandemic, it's that philosophy that, first of all, is the foundation. The second one is the investment that we've made in, we call it advanced underwriting. It's moving away from a lot of the score-based, but more data-driven, approaches. You know, as we get a lot of data from our partners, a lot of unique data that comes into the underwriting system, the way in which we originate, it requires us to be different. So we take those two things as fundamental foundations of our credit program. I think as you look at, you know, you frame it as what gives us confidence, a couple of things. You know, one, when we look at the year-over-year delinquency, it's been stable.
We haven't seen an acceleration. It's just been very consistent. I think now, as I just kinda told you, we think February is generally flattish. I think it's positive. You start to see the potentially, you know, hopefully you'd see that kind of continuation or bend down. So I think that gives you the output. The second thing that we did, and we talked about this, you know, both in the second and third quarters, we took some broader-based actions. We're always doing credit refinements on an idiosyncratic basis. We took some broader-based actions on score migration and other things last year. That takes time to season.
So I think when you look at the actions, the account management and origination actions we took last year, that should really help you 9-12 months out, which puts you more middle to back half of the year, the effects of those actions. So I think it's a combination of the foundation. It's a combination of the actions that we've taken, that really give me the confidence to say we're gonna be inside that range, and we're gonna continue to manage to do that. We don't, we don't view going above the 6% as opportunistic for us. It's just not the right risk-adjusted margin we wanted, we want to have. So I think it's a combination of those factors.
... I'm gonna put a pin on that and ask about the reserve later. But maybe, going back to the first question, you know, you alluded to this a little bit: Has there been any change in the spend patterns? You know, and as we break out, you know, of the idiosyncrasy in weather, how do you think, you know, spend trends are generally going to evolve this year?
Yeah. You know, first of all, the consumer, as much as we give them credit for consuming a lot and overconsuming at times, they've managed to relative budget. So what we've seen is generally transaction values decreasing, even though you see inflationary-
Mm-hmm
-pressure throughout-
Yep
All of 2023. But you see frequency kinda going up, so you see the counterbalancing. So consumers are being more thoughtful with where they get goods. We clearly see, you know, because we're- we are a full-spectrum lender, we, we're largest by number of accounts from a credit card perspective. We see pretty broad-based growth. We have seen shifts away from travel, even, even restaurant-- like, restaurant values have trailed down. You know, both a little bit on frequency, but also on transactional value. So, so maybe not as high-end, maybe people are taking takeout. They're not, they're not doing... We've seen some shifts there. We saw some shifts in the fourth quarter into, clothing and goods, which you've seen is more holiday. We've seen that back off here in the first, month of, 2024. So it's relatively consistent.
We don't see things that are significant, even when I look at by generational. So we look at the Gen Zs and millennials. They're all following the normal patterns and moving generally in the same direction. So we don't see anything that's troubling to us or outliers with regard to any segment, whether it's credit, you know, call it the millennial Gen Z type equation, credit grade. So it's been fairly, again, resilient or benign, I'd sit back and say.
Resilient, I think, is the critical word for the consumer these days, especially around here. Normalizing payment rates, which you mentioned, have been a big contributor to both loan growth and the increase in yields that we've seen over the past year. I think as of the fourth quarter, your payment rate was about 115 basis points-
Right
- above pre-pandemic levels. And you noted that you expect that to moderate further, but remain above pre-pandemic. Just curious, do you feel like there's anything that's changed in terms of your customers, the way they use their cards, that would suggest that this is the new normal?
Yeah. So the simple answer is no, we have not seen data. We can theorize why it's above. Most certainly, I think when you look at the mix for us, we have more super prime in, excuse me, which will push the rate a little bit higher, a little bit less subprime. We have seen a little more shift to auto pay, which a lot of people, when they set auto pay, may be at a level not necessarily statement balance. But generally speaking, I don't think we see something that says fundamentally there's a shift. You always will have shifts as we grow health and wellness. That has a slightly different payment rate given the promotional nature-
Mm-hmm
of it, but there's not something fundamental with the consumer that we see. Again, I go back to that K-shaped recovery. We do see payment rate differential by credit grade. And again, the upper part of the credit spectrum has greater access, still has access to money that probably shouldn't have been, you know, afforded them through the pandemic period, where if it was more surgical, probably would have, should have gone to lower credit grades. But other than that, we think that burns through. It just has a longer tail to kinda go, but nothing... As we sit here structurally, I can say that I have a new rerate. I think as you think about growth for 2024, we say it's going to moderate.
We don't have a significant moderation in play, and as I said earlier, even some of the softness we've seen in sales has been offset really by a slightly higher payment rate than we expected.
So you're-
Lower payment rate than expected, sorry.
So 6%-8% loan growth for the year. You know, other than obviously a huge swing in macro, what are the biggest factors that would drive you towards either the low or high end of that range?
It's really simple. It's gonna be the, does purchase volume either exceed or significantly-
Yeah
Fall short expectations, number one, and how does payment rate develop? And a lot of times, what you see is those two counterbalance each other. So if, if purchase volume was to fall slower, you would expect the payment rate to decline. So from an asset standpoint, you should get some resiliency in there, and it can go the other way. If you see purchase volume accelerate and be higher than expectations, your payment rate is probably gonna be higher as well.
So you also announced right before last earnings season that you'll be acquiring the $2 billion Ally Lending portfolio. You know, talk to us what was attractive about the portfolio in the first place, how you see that fitting into your current strategy, and I know you wanted to mention also the Pets Best transaction.
Yeah. Yeah. And so first, they were totally delinked. A lot of people are trying to-
Yeah, yeah, yeah
-put them together, but they, they really weren't. You know, let me first start with Ally Lending. We're really excited. I think it's a good transaction both for Ally and for us. We had a home specialty business. We like it a lot. We like the return profile of that relative to the company average. We like the loss profile of that relative to company average. And it's a space that we know well and know how to do. And so when this asset became available, I think we looked at it as, number one, it provided us the ability to get into certain other aspects in home specialty we weren't necessarily as deep in today, so take HVAC or roofing. So it added for us kind of new subverticals inside the home specialty.
We've added a number of different merchants and customers that gives us scale. So, so when we take a step back, you know, we believe that the scale that we have, we get cost synergies and revenue synergies, that, that makes it really attractive, and it operated at a return higher than our company average. Loss rate, attractive. And then when we look at all the measures of a transaction, you know, it, it's gonna be accretive to earnings, excluding the day one reserve post. You know, immediately, when you look at, at the effect on the tangible book value, it's a, a little over a three-year payback-
Yeah.
you know, on that. Great IRR. So when we look at that, and we look at the depth of expertise, you know, this was new to Ally. I think it fits in very nicely with the portfolio. We're excited for the, you know, under 300 people that we're gonna acquire. So we think we get scale there, and there's real momentum, and we're on track to close that here in the first quarter. The other one, which we talk about, is Pets Best, and I always get the question: "Well, is there another Pets Best?" I'm like, "This was a very unique opportunity." We acquired that business, I believe, back in 2019. It had 125,000 pets in force.
We were focused on scaling that business, so we scaled pets in force to just under 800,000. And that industry, you know, from scarcity assets, the valuations really took off. And what that transaction allows us to do with both, you know, IPH and its parents, JAB, was to unlock the value that we created through scale, which presented the gain, but also gave us the opportunity to have a significant equity exposure inside IPH. So we actually have greater exposure now because there's more pets in force.
Right.
Combining our CareCredit product with that, we think there's a greater opportunity. And what it allows us to do is really to transfer the operational side, but really have the opportunity to continue to grow our business commercially with them as we move forward. The other thing I'd say is, you know, we have a good relationship with both JAB and IPH. IPH has, as an underwriter for us, that we're doing business with. JAB has a veterinary group, which is a large and attractive one, so we like doing business with them, and I think we're excited about really what, you know, lies ahead.
It produced a great gain for us, but really, it's, it's the value as we move forward, that continued exposure, because we believe the combination of, of having a credit product with insurance is valuable both to pet parents-
Mm-hmm.
-as well as our veterinary partners.
Can I go back to Ally Lending for a second?
Sure.
Because I do believe that you've said that you could improve the underwriting in this portfolio over time.
Mm-hmm.
At the same time, you just mentioned that you'd like to scale it. How do you balance those two dynamics?
Yeah, so a lot of times when you look at the underwriting, it's really... You know, we write to a risk-adjusted margin. I think as Ally pushed in, they acquired the, I think it was the old HS business. They were pushing into more home improvement, where they probably didn't have as deep models as you think about the underwriting. So it's the combination of the price-loss equation. So we bring deeper underwriting expertise. So as we convert that over to our underwriting platform, we would expect to get an outcome very similar to our outcome.
Got it.
They were trying to scale a business and bring it in and try to move into verticals that they didn't have, that you know quite as much experience in, which makes it attractive for us.
Health and wellness has been a real driver of growth for you guys, with loans up, I think, 19% in 2023. Could you talk a little bit about the drivers of the strong momentum here? Are there any pockets on the healthcare side, in particular, where you've seen more success than others?
Yeah, so, you know, the health and wellness business has been a very important part of our strategic focus over the last couple of years. We've invested more heavily, both in resources there, our direct-to-consumer platform. And there's a real need, I think, as you look at consumers where, you know, the cost of, you know, dental procedures, orthodontics, even the veterinary practice, they've rapidly expanded. And when you have a pet emergency and it's $3,000, it's tough to tie up your line. So having promotional financing there makes a lot of sense. So there, there's tremendous need. You know, we've gone through the puppy boom of the pandemic and even the dental.
So there's a real need for the product, and I think, you know, we have a high NPS score on this product. So it really fits in with what the consumer wants and how they want to manage their healthcare expenditure. You know, also, what's in there, we acquired a business, Allegro, a couple of years ago, which was really in audiology, but provided a base for an installment product that now allowed us to offer both installment financing, closed-end, or the open-end, revolving promotional financing.
So we have a broader suite, and allowed us to kind of wrap the two products around each other and say, "Give more customer choice." I think when you look at that, I think when you look at the way in which we've got to pre-qual and QR codes in the office providers, so you've disengaged some of the front office folks, it really made a lot of sense and a lot of momentum around that. I think we're maintaining focus on what we want to do in health and wellness. We're not trying to be everything to everybody.
Most certainly, we rely on the non-emergent services, so it's attractive business, has a very attractive financial profile for us, and one that we think will continue as you think about our sales platforms going forward, be probably the leader with regard to receivable growth and volume growth.
I want to turn for a minute to some of the trends that have been reported recently in the buy now, pay later space, which, you know, clearly was part of the engine of the holiday spending season. I think looking back at the pandemic, when these products really started to take off, it seems like it wasn't really a credit card substitute. It was like a debit card substitute. But, you know, do you think that's still the case today? Because, you know, you are always swept up in a discussion in terms of credit card market share getting taken away from you from these players.
Yeah, so, you know, a lot has been made of the growth rates in that sector, and to be honest with you, they're very small players, so growth rates don't really amount to as much volume, everyone.
Low base.
Low base. You know, but listen, let me start with, they are competitors we watch. Most certainly, they, they've invested a lot in the customer experience.
Mm-hmm.
So, so we wanna make sure that we continue to innovate there, so I think it's good for us. I think if you look at their development as companies, though, in the pandemic period, when capital had a less cost to it, you know, when credit was incredibly benign, and the pandemic was there, they effectively used MDR, and retailers were willing to say: "Listen, I'm gonna shift dollars maybe from marketing to here-
Right.
- to try to create that base." Now, as things normalize, I think retailers go back and say, "I'm not gonna pay the heavy MDR for installments, particularly short-term installments." And so they've had to transform their model, right? So where it used to be the pay in 4 or the pay in 6, now it's kinda getting into more monthly and longer-term installments. And I think you see some of the competitors understanding that they need a multi-product. Our whole model is having multi-product. So we can actually do a pay in 4 if you want. We can do monthly closed-end installments for different durations. We can do a secure product. We can do a private label product. We can do a dual-card product. I can do it here. I can do it on our commercial.
That breadth of products, bringing it to a retail partner, gives you options to say, "How would you want to use this in order to pull through sales?" I think you see in their evolution, they're trying to create that multi-product setting, but it-
Right
... but they're starting from scratch, you know, all over the place. So, you know, we watch them. We always have productive paranoia about them. To your original question, though, we don't see them directly competing with us. They are still in the debit, people who aren't necessarily gonna apply for credit or can get credit. So we don't really see an overlap onto our business and been influenced really by their existence there. And the final thing I'd say about those companies, and we'll see how it develops, what we'd like to see is really a level playing field.
So if you're applying for a buy now, pay later loan or a product with us, that ability to have the same fair and transparent disclosures or just, you know, providing your income, having that level playing field, that's all we want. We think that the regulatory buyers are kinda focusing on that or reporting to bureaus.
Mm-hmm.
Unique concept to report indebtedness to the bureau. So we just hope that playing field gets leveled, and then again, we don't mind competition, but they're really not quite in our space, you know, today.
Got it. Just wanted to... Speaking of partners, in your 10-K a few weeks back, you updated us on your partnership agreements, with 92% of your loans from your top 25 programs having an expiration date in 2026 or beyond, right? Up a bit from 90% at the end of 2022. Could you tell us anything about the state of the partnership market, what the competitive intensities like there, and maybe what the biggest sticking points are with, you know, your partners when you're talking about renewing programs or starting new ones?
Yeah, so, so, you know, first let me describe what I'd say the competitive environment is, and I'd say it's generally rational, to be honest with you. You don't see everybody everywhere, so I do think issuers have certain swim lanes they wanna stay in or certain attributes or programs that they want to engage in. So, I think you see that. There's times we'll see somebody that we don't see another one. I think pricing for some degree has been, you know, in check. I think part of this is now getting through late fees, which I'm sure you may ask me a question about at some point, maybe not, but getting through the late fee, you know, potential rule becoming finalized.
So, I think it's somewhat rational. I think what we hear more, and there's more time that's spent, I think, today than there was five or 10 years ago, on capabilities. Where are you digitally? How are you engaging my customers digitally? Can you move as fast? You know, what's your API structure? So more technology and digital-based, which we have invested a lot in. I think we have some of the best digital assets in the business, so I think continuing for us to invest there and showing that differential.
I do think when you see new entrants into the market, one of the things that partners are looking at is, like, how well have things performed when partnerships that have moved or new ones, and what do you take from that and that partner's ability to execute in this space? So, we think we have a strong track record in... You know, for our existing partners, we try to win their business every day. It's not just on a renewal. They have long memories, so-
Yeah
... so we try to do the best we can every day with them.
Maybe we can tie that to your retailer share agreements, or RSAs. You got into an RSA in the 3.5%-3.75% range as a percentage of loans this year, a step down from about 3.8% in 2023. Could you talk about what drives your expectations in RSA this year, and maybe tie that with the growth in health and wellness, and also your earlier statement about net charge-offs?
Yeah, so, so I think when you think about year-on-year sequencing, you have a continued increase in the net charge-off rate from 2023 to 2024. So that has an inherent way to push the RSAs a % of loan receivables down. I think in the same respect, you know, you know, we do have a cycling on interest-bearing liabilities costs that will be full year 2024, higher than 2023. So those two actually push the RSA % of loan receivables down, partially offset by some higher revenue.
Mm-hmm.
Right? As you see a little bit more revolve in the book. So that kinda explains the more sequential movement down between 2023 and 2024. I think as you think about that, as you move forward, we would expect then, as interest-bearing liabilities cost to come lower in the future. We can all debate when that starts to come lower.... That's when you'll begin to see the RSA probably, you know, continue to maybe migrate back towards a more historical norm. But this is the way they're designed, right?
Yep.
You know, I know people were a bit concerned when it got over 6%, but that was when historic losses were incredibly low, interest rates were incredibly low. That's what it's designed to do. So it's designed in those times to share more, and we'll be below our, you know, our long-term average as you see things probably above where they normally have set. So we think about that. You know, obviously, between all the sales platforms, there's a little bit of mix, but that's not really the driver of the movement, to be honest with you, between years. It's more the dynamics between that charge-off and just varying liabilities.
Brian, I just wanna take note that we've been chatting for over 25 minutes, and now the late fee question is coming.
Okay.
So what are you willing to tell us at this point? We've been, you know, waiting with bated breath for the final rule to come out. And clearly, it is so critical, not just for current shareholders, but prospective shareholders. You know, as we think about all of the good things that you have just mentioned in terms of strong momentum in business and strategy, but then there's this overhang. So as we think about mitigants, what are you willing to tell us today, in terms of how Synchrony is going to approach those mitigants before we have a final rule?
Yeah. So, I know this has been incredibly frustrating for you and for investors because we're all waiting to see if a final rule comes out. Some people ask me if a final rule will come out. I said, "I'm not sure." You know, I would only hope that the regulatory body is considering the comment letters and taking that into play, but that's not the base case we're presuming. And that, you know, we would expect the rule, you know, as best we can tell from people around the regulatory agency, it will come shortly. So that said, I don't have a lot new for you, and I wish I did.
What I'd say is if the rule comes out and looks substantially similar to the proposed rule, we will be out very quickly with disclosure around what it means for us and how people should think about how those things play out for 2024 for our company. You know, it's not lost on us, people's focus on the implication, not only for this year, how we exit out of 2024, but what it means for the business. What I would take away from this, you know, conversation is we have over 400 people that have been engaged for now a year on this project. We, you know, we engaged early with our partners. You know, different than others, there's not a lot of recycling that happens with partners.
So we're ready to execute against that. And as Brian indicated, you know, January, we started some that execution, and we built plans around it. So now it's just, you know, waiting for that final rule and assessing it. Regardless of whether or not there's litigation or not, we understand the magnitude, and we're ready and prepared as a company to deal with it. So we'll be as transparent as we can, you know, assuming that the rule comes out that day, to engage with people and dimensionalize it for them.
Are there a lot of pre-conversations that could happen with your, you know, regulatory stakeholders in terms of mitigants ahead of this final rule? In other words, you've been working on this for over a year, 400 people, right? Obviously, you're thinking about the risk-reward of every mitigant. As you think about, like, the risk of reaction, let's say, how much could you have actually pre-vetted that during this waiting process, if you will?
Yeah, you know, I can't get into specific details of our conversations with all the regulators. You know, most certainly, they have access and understand what we are doing.
Mm-hmm.
So the important part is when you think about a repricing or product strategy, is, you know, what are you doing, and is that practice existing in the marketplace today? Is it a new practice? Is it acceptable? And we have a team that kind of goes through that. So I think for us, the focus really becomes around the execution around that. This is the largest effort I think anyone's ever undertaken, is most certainly our company and is really as an industry. So we think we've put the things in place from a monitoring, servicing, and other standpoint to deal with it.
I think our focus, a lot of which is making sure that we execute well and that we go as hopefully as seamlessly as we can with our customers. That's really the focus. But again, you know, they have access to what we're doing. It's not gonna be necessarily, you know, a surprise, but again, we're focused on execution and ready whenever or if a rule comes out.
This might be a good time to remind people that if you do have a question for Brian, you can scan the QR code at your table and submit it, and I'll see it on my iPad. Let's shift to net interest income for a moment. You guided to $14.5. You guided for the full year. I think we have a typo here, $14.5-$14.8?
We got it on dollars.
Dollars. Yeah, yeah, dollars.
I think it's 17.5.
Yeah, sorry. I knew this was wrong. I was like, "This range is, like, $4 billion. This is a typo, clearly." Your outlook included three rate cuts, which the market is going to you, by the way.
Okay.
How do you see your NIM progressing throughout the year, and how does that translate into the NII trajectory?
Yeah, so, let's talk about the rate cuts. So we had three rate cuts really starting in September. Generally speaking, you know, digitally oriented institutions like us lag a little bit. So that's why I think when people look at the beta, again, we start the beta when the rate cycle goes down, it's not as high this year. It should be, right, relative to the way up, similar to the way down ultimately. You know, as we think about NII, the interest-bearing liabilities really doesn't have a big impact, to be honest with you, on the NII dollars this year as much as it's more around the asset growth, where you come in on the range on the asset growth, and then really how the payment rate works.
If there were rate cuts that happened sooner, so if you do see something in May, then there could be some benefit to that. But if it happens towards the back half of the year, it's just not a lot given the reset of liability.
And the lag.
And the lag effect, yeah.
Speaking of that lag, how is the competitive intensity right now for high-yield savings?
Yeah. So I think, you know, it's been interesting the first two months. I think you've seen most a lot of issuers that we look at in the competitive set flattening out and pulling in CD rates. And generally speaking, when I see that, it looks like people are trying to shorten the duration in the event that you do have rate decreases out there. And when you pull the CD rates in closer to your high-yield savings rate, you're not really incenting people to go long, so you're trying to keep them in the high-yield savings rate, which means most of our competition is preparing for rate decreases as-
Right
They go down. Well, certainly the larger institutions, I think, will want to move faster in the rate declines. The regionals and digitals may be, you know, generally lag anywhere from 30-90 days down, but I do think you will follow similar beta. I think some of the outflows in money market mutual funds are helpful, as those rates kind of come down. So, I'd say it's very rational. I'd say the flattening out and pulling in the CDs probably has been a little bit surprising to me so early, but it's helpful.
So, there may have been a small deal announced last week. And you know, clearly one of the big talking points of that deal has been the, you know, the debit interchange advantage of owning Pulse. How does that—does that impact, you know, eventually, you know, the intensity for deposits in, you know, in general, even if the Fed cuts, right? Even if the Fed cuts to what seems to be an ideal neutral rate for you, and I have a question for you there, of, like, 2.5%.
Mm-hmm.
You know, if someone has different interchange dynamics, they could have a very competitive deposit product. You know, any thoughts there?
Yeah, you know, first of all, I said we do like competition. It creates innovation for us. Most certainly, they have an advantage. We'll let folks figure out whether that advantage on the debit side is going to stay or how people think about it. I know Jamie commented on it yesterday from a little bit south of here. So we'll let people figure that out. Most certainly, I think when you look at both Capital One from their product and Discover, it creates a large depository digital bank that we're going to have to compete on. I'm not sure that the debit interchange advantage moves it, because you'd need different products, but it's something we're going to continue to focus on.
We think we have a niche in who we go to market with and, you know, we'll sort out, but that's something that we will focus our attention on and how that plays out, because that's one of the more direct as well as some of the direct connection with the merchants, some of the things that are more impactful to us as a result of that acquisition.
So-
or potential acquisition.
So your margin was 15.1% in the fourth quarter. Your long-term target is 16%. What is the ideal rate backdrop, again, late fees aside, that would get you back to 16%?
Probably a Fed fund target around 2.5%, which puts prime roughly 5.5%, and a normalized charge-off rate between 5.5% and 6%. With that, a normalized revolve rate. That's really the biggest factor that kind of get us back. You know, again, we'll see different mix come into play over time if we continue to grow health and wellness at the pace we are. That's probably accretive to earnings, but may have an impact down the road as it becomes a bigger percent. We want it to be a bigger percent, but we'll see. But it really is getting Fed funds back to 2.5%.
Maybe to wrap up the conversation, let's talk about capital and capital priorities. You have two transactions that are, you know, expecting to complete shortly, $600 million remaining in your current authorization. How should we think about your appetite for repurchase this year?
Yeah, you know, what's great is starting with the point of excess capital-
Yeah
... number 1. Number 2, I think we put a CET1 walk in the fourth quarter. We generate a lot of capital each year. We have one more after this year, one more installment on CECL transition, but we generate a lot of capital. So I think as we look at that, we start from a real position of strength relative to our target. You know, as I think about the remaining $600 million of authorization, well, you know, you know, the current view, obviously, we feel comfortable with the macro environment. We're able to you know deal with these two transactions-
Mm-hmm
... and continue to move forward. So I think for our capital, we feel good. We're in the process of completing our capital plan now. We start the CCAR process this year, so we'll submit our capital plan. We won't get a stress capital buffer until 2026, but we're well onto that process, and we feel good about where we are. And hopefully, we'll be back in the second quarter to talk about our plans for 2024, 2025. But we feel good about macro. We'll see where Basel III ends up. I do think there's going to be significant modifications to that rule, we hope, and based upon our discussions with both Fed governors and others. So you know, we'll deal with that when it comes.
But right now, we continue to be on the same type of trajectory and cadence that we've laid out for people.
So maybe my last question here. You know, the late fee rule has really just sort of overshadowed, I think, the narrative of the franchise over the past 12 months. What would you like to say to investors in terms of, you know, the things that are going right in the company? And maybe sort of one more statement on, you know, you've talked a lot about, you know, how you're thinking about the mitigants, but maybe another statement about how, you know, those mitigants naturally play into the strategy of the firm.
Yeah, you know, let me just probably give you three things. I think our execution around health and wellness and accelerating the growth in that sales platform has done incredibly well in light of their expectations. Our focus around, you know, we call it accelerating the customer experience in marketplaces and driving that customer experience is really leveraging growth throughout the platform, which is driving the value and execution. And the third thing is, I think we've controlled credit better than, I would argue, most everyone other than maybe one issuer. So I think that people should walk away with the sense that we have credit in a perspective where we should get credit for those things. So I think there's a lot of really positive things.
I think as we think about the execution for this year, we've invested a lot to potentially deal with the potential late fee rule. If you go back, we had a chart in our fourth quarter. You know, we dealt with the Card Act. You know, we've given the goal to be-
Mm-hmm
... ROA neutral. We're trying to maintain the same level of sales. That hasn't wavered. I think the alignment of partners through RSA and how it functions helps us with that. You know, there's sense of urgency. I know when we come out and we give some disclosures, my hope is that people gain confidence in the plan that we've put together with our partners to execute. And then I'm sure there will be some, "Okay, prove it to me," and we're ready for that. But I think we're set up for that, and then it just goes into the execution around Ally and Pets Best. So I think from a growth standpoint, we've set ourselves up with the right strategic investments, our digital capability to help us win in the market.
We think we are controlling credit better than most, and I think we have a plan around some of the bigger initiatives inside our company. So, we're excited about how we exited 2023 and what we have in front of us in 2024.
Great. Just checking in our last 45 seconds if there are any analog questions in the room for Brian?
I will give you a lot of credit. The iPad thing, which is very unique, it's working fairly well.
Yeah.
I'm not sure you got any questions.
High, high tech. Well, you know, the late fee rule didn't come out at 5, so I'm sure you would have a lot of questions if it did. Anyway, thank you so much, Brian, for your time.
Thank you.
Appreciate it. Thank you.