Jeffrey Adelson

Jeffrey Adelson of Morgan Stanley sought to clarify if the $4.5-$5 billion origination opportunity estimate is based on current run rates and if 2028-2029 is the right timeframe for full realization. He also asked about the exploration of private credit partnerships, including potential P&L impacts and trade-offs versus the current gain-on-sale model.

Answer

CEO Jonathan Witter confirmed the estimate is consistent with the current credit risk appetite but includes an assumption for growth in average loan size over time, and agreed with the logic on the multi-year ramp-up. Regarding private credit, he emphasized Sallie Mae's unique market position and stated he sees no reason to accept terms that are materially different on a lifetime value basis from other funding avenues, highlighting the potential for a 'one plus one equals three' complementary partnership.

Jeffrey Adelson asked about the primary drivers behind the strong credit performance, questioning the role of loss mitigation programs versus other factors. He also inquired about the potential impact from the U.S. government resuming collections on federal student loans and whether changes in federal programs are driving more graduate borrowers to the private market.

Answer

CEO Jonathan Witter attributed the strong charge-off performance to a combination of seasonality, optimized loss mitigation programs, and long-term underwriting enhancements. Regarding federal loan collection resumption, Witter stated that Sallie Mae has not observed any material negative impact on its customers' FICO scores or payment behaviors, noting that 85% of their joint customers who are delinquent on federal loans remain current on their Sallie Mae loans. He added it is too early to see a definitive shift in demand from federal program changes but will monitor it during the peak season.

Jeffrey Adelson from Morgan Stanley asked how the company would manage a potential influx of Grad PLUS volume, specifically regarding the balance between loan sales and portfolio growth, and questioned the reasons for the decline in average loan yields on new originations.

Answer

CEO Jon Witter stated that any significant increase in originations, including from PLUS reform, would likely be managed primarily through additional loan sales to adhere to the modest balance sheet growth strategy. CFO Peter Graham and CEO Jon Witter explained that lower yields are a function of originating higher-quality loans, but emphasized that the company focuses on optimizing risk-adjusted Return on Equity (ROE), which remains strong.

Jeffrey Adelson asked for the specific driver of the 'procedural refinement' in loan modifications, whether it caused the rise in early-stage delinquencies, and if the long-term charge-off target could be revised lower.

Answer

CFO Pete Graham explained the procedural change made loan mods effective upon acceptance to reduce complexity and did not impact delinquency stats; the rise in early DQs was due to normal seasonality. He also stated that while performance is strong, the company is not yet ready to change its long-term charge-off target of high 1% to low 2%.

Jeff Adelson focused on Bread Financial's pipeline and recent signings, noting a focus on the home vertical and asking if this indicates a strategy to create a network effect or launch joint cards in that area. He also asked about other vertical areas of focus and the nature of the robust pipeline. Additionally, he inquired about the conditions required for Bread Financial to move past its medium-term CET1 target of 13%-14%, such as issuing preferred shares or achieving an investment-grade credit rating, and whether the company prefers a larger or more frequent share repurchase authorization.

Answer

Ralph Andretta (President and CEO) confirmed the home vertical is a strong and active area for Bread Financial, viewing it as positive for future growth and aiming to be a leading contender. He emphasized the diversified portfolio across various verticals (travel, beauty, home furnishings) to insulate the company from issues in any single industry. Perry Beberman (EVP and CFO) reiterated that capital priorities remain unchanged: funding responsible growth, investing in technology, maintaining strong capital ratios, and returning capital. He stated that introducing Tier 1 capital (preferreds) would be necessary to lower the CET1 binding constraint to the longer-term target of 12%-13%, and that this decision would be opportunistic and market-dependent, not contingent on an investment-grade rating.

Jeff Adelson focused on Bread Financial's pipeline and recent signings, asking if the home vertical is a strategic focus for network effects and other vertical areas of interest. He also inquired about the capital return strategy, specifically what would be needed to move past the 13-14% CET1 target, including preferred shares or credit rating upgrades, and the cadence of share repurchase authorizations.

Answer

Ralph Andretta (President and CEO) confirmed the home vertical is a strong and active focus, with plans for further expansion and diversification across products and industries. Perry Beberman (EVP and CFO) reiterated unchanged capital priorities, noting that introducing tier-one capital (preferreds) would be necessary to reach the longer-term 12-13% CET1 target. He clarified that credit rating upgrades are less relevant for capital actions and that the company does not need investment grade to take such actions.

Jeffrey Adelson of Morgan Stanley questioned the credit outlook, suggesting the back-half guidance might be conservative given strong underlying trends in June. He also asked if BNPL has become a more frequent topic in partner discussions and about focus areas for new client verticals.

Answer

EVP & CFO Perry Beberman acknowledged the positive momentum but reiterated a cautious stance due to macro uncertainty, confirming the Q3 loss rate guidance of 7.4-7.5%. CEO Ralph Andretta explained that BNPL is one of many products in their suite, allowing them to meet diverse partner needs. He noted the pipeline is robust with de novo opportunities in new verticals, similar to how they successfully grew their beauty portfolio.

Jeffrey Adelson questioned whether consumers were pulling forward purchases ahead of potential price increases and asked for other signs of consumer health. He also inquired if any incremental strategic credit tightening actions were taken during the quarter that might be affecting the loan growth outlook.

Answer

EVP and CFO Perry Beberman confirmed seeing some pull-forward spending, particularly in electronics, home furnishings, and auto parts, ahead of anticipated tariff-related price hikes. On credit actions, he stated that the company has maintained a consistent and prudent posture. He clarified that the current economic uncertainty is delaying what might have otherwise been an opportunity to begin loosening credit standards, rather than indicating new tightening measures.

Jeffrey Adelson sought clarification on the Net Interest Margin (NIM) outlook for Q1, asking whether to expect pressure or flatness. He also asked how to reconcile the 'green shoots' in spending with expectations of consumer moderation, and for an update on consumer health trends by income or FICO score.

Answer

EVP & CFO Perry Beberman projected that Q1 NIM should be 'seasonally slightly up' from Q4, balancing positive factors like transactor paydowns and mitigation efforts against negative pressure from prime rate cuts. He noted that the low-end consumer is seeing slight improvement while the prime-plus segment may be feeling more pressure. He added that the company remains cautious due to unknowns, such as how consumers will use their tax refunds.

Jeffrey Adelson asked for an update on late-stage delinquency roll rates and whether charge-off seasonality in 2025 would follow delinquency trends. He also inquired about quantifying the impact of potential charge-offs and Fed rate cuts on gross card yields.

Answer

EVP and CFO Perry Beberman provided a detailed economic overview, expressing cautious optimism for 2025 and expecting back-end roll rates to improve with a soft economic landing. He explained that while lower loss rates in 2025 would benefit net interest margin, the company's asset sensitivity means that benefit could be muted by the impact of Fed rate cuts on variable-rate assets.

Jeff Adelson with Morgan Stanley asked about the drivers behind Ally Financial's strong origination growth, which was the fastest in almost four years, noting that it outpaced application growth. He inquired about the confidence to lean in while maintaining a high S-tier percentage and commented on the strength seen in lease volume, particularly EV leases. He followed up by asking about Ally's differentiation in credit performance compared to peers experiencing accelerating delinquencies, and for details on the performance and success rates of Ally's servicing strategies, including modification rates.

Answer

CFO Russ Hutchinson clarified that approval and capture rates were consistent with historical trends, with volumes driven by opportunity and application volume. He attributed lease strength to demand pull-forward from the EV lease tax credit program's expiration and tariff noise. He emphasized Ally's strong dealer and OEM traction, consistent market presence, and comprehensive value proposition as key competitive advantages. Regarding credit, CFO Russ Hutchinson stated that Ally's lower credit tiers are performing better than expected, benefiting from underwriting decisions made in 2023 and refined servicing strategies. He detailed servicing enhancements, including digital communication, transparency notifications, reduced friction for extensions/modifications (with cash requirements), and thoughtful adjustments to repossession timing, all tracked for better outcomes.

Jeffrey Adelson inquired about credit trends, specifically the impact of used car prices and the benchmarks needed to increase originations in below S-tier credit, and also asked about the timing of capital returns.

Answer

CFO Russ Hutchinson stated that the credit outlook depends on delinquencies, flow-to-loss rates, and used car prices, and that underwriting decisions are data-driven at a granular level. Regarding capital return, he clarified that the stress test is not a gating factor for share repurchases; rather, the key determinants are the fully phased-in CET1 ratio and organic capital generation.

Jeffrey Adelson inquired about the expected Net Interest Margin (NIM) trajectory for Q2, considering the card business sale and other factors. He also asked about the timeline for achieving a retail auto loss rate below 2%, given recent credit performance.

Answer

CEO Michael Rhodes reiterated the full-year NIM guidance. He explained that the ~20 basis point negative impact from the card sale in Q2 will be offset by positive factors, including the full benefit of recent deposit repricing, favorable CD maturities, and the securities portfolio repositioning. Regarding credit, Rhodes stated the full-year loss range remains 2.0% to 2.25%. While Q1 results would point toward the lower end, he cited caution due to elevated delinquency levels and macroeconomic uncertainty.

Jeff Adelson asked for an update on credit performance trends since the July/August period, specifically if underperformance had stabilized, and inquired about trends in early-stage delinquencies. He also asked about the motivation for the potential EV lease accounting change.

Answer

CFO Russ Hutchinson responded that credit performance has been stable through September and early October, and that early-stage delinquencies have also been reasonably stable. Regarding the EV accounting, Hutchinson explained the discussion was initiated internally due to the growing volume of EV leases, which creates significant tax rate volatility under the current method. The goal is to find an accounting treatment that better represents the underlying economics.

Jeff Adelson asked for more color on the health of the consumer base, particularly at the lower end of the spectrum, given recent market headlines, and if there was any noticeable impact from the government shutdown.

Answer

Chairman and CEO Stephen Squeri highlighted that American Express's delinquency rates (around 1.3%) and write-off rates (around 1.9%) remain stable and significantly better than competitors, indicating strong consumer health. He noted no impact from the government shutdown, referencing historical experience where shutdowns did not materially affect the business, and mentioned short-term relief programs for impacted card members. CFO Christophe Le Caillec added that strong retail and restaurant spend, along with high acquisition of fee-paying products, reflect confidence in the consumer base.

Jeffrey Adelson of Morgan Stanley asked about the strategy for managing airport lounge access, particularly concerning overcrowding due to robust card member growth and increased competition from other issuers and airlines.

Answer

Chairman and CEO Stephen Squeri detailed a multi-faceted approach that includes providing priority access, expanding lounge sizes where possible, and innovating with new concepts like the 'sidecar' lounge. He also highlighted the close partnership with Delta to manage traffic and a strategy to build satellite locations to better handle demand.

Jeffrey Adelson asked about the Millennial and Gen Z cohort, inquiring about any underlying issues related to factors like student loan repayments and requesting data on spend per account.

Answer

CEO Stephen Squeri reported seeing no issues, highlighting strong spending growth of 15% in the U.S. and 22% internationally for this cohort. CFO Christophe Le Caillec added that the average FICO score for this group at acquisition is 750, and while they spend about 20% less than older generations, their credit performance is excellent and better than pre-COVID cohorts.

Jeffrey Adelson asked for details on the 2025 product refresh strategy, specifically mentioning the U.S. Platinum card, and for an explanation of why credit write-offs are expected to increase modestly despite strong recent performance.

Answer

CEO Stephen Squeri declined to pre-announce specific refreshes but confirmed plans for 35-50 in 2025. CFO Christophe Le Caillec (identified as Unknown Executive) explained that while credit metrics are strong and below pre-COVID levels, they are expected to trend up modestly as large new customer vintages season over time. He stressed that performance will remain best-in-class and that they are very comfortable with their credit position.

Jeffrey Adelson from Morgan Stanley asked if the full-year revenue growth guidance of around 9% implies an acceleration in Q4. He also inquired about the discount rate, noting that discount revenue growth lagged billed business growth.

Answer

CFO Christophe Le Caillec explained that the lower discount revenue growth is due to a mix shift, as the international business, which has a lower average discount rate, is growing faster than the U.S. He stated that the 9% full-year guidance reflects an expectation of stability and a continuation of Q3 trends into Q4, not a reacceleration.

Jeff Adelson asked if increased prepayment from installment lending competition or private credit demand is contributing to elevated payment rates. He followed up on the success of Pay Later at Amazon, asking if it reinforces or shifts Synchrony's multi-product strategy and if continuous rollout to all partners is expected.

Answer

Brian Wenzel (EVP and CFO) stated that Synchrony has not seen negative impacts on application flow from installment products, nor material shifts in accounts paying off to zero or changes in payment behavior due to personal loans. Brian Doubles (President and CEO) confirmed that the success of Pay Later, including at Amazon, reinforces the power of Synchrony's multi-product strategy, as partners appreciate offering both revolving and fixed-payment options, and this will be the going-forward strategy for continued rollout.

Jeff Adelson inquired about the timing of expenses related to the Walmart One Pay launch and the potential for the 'Buy Now, Pay Later' (BNPL) product to become a meaningful contributor to the business.

Answer

EVP and CFO Brian Wenzel clarified that expenses for the Walmart launch will primarily occur in the second half of 2025, split between Q3 and Q4. President and CEO Brian Doubles expressed strong optimism for their Pay Later product, viewing it as a meaningful future growth driver. He highlighted strong partner adoption at retailers like Amazon, Lowe's, and JCPenney, emphasizing the power of offering a multi-product suite to consumers.

Jeffrey Adelson inquired about the conversations and feedback from retail partners regarding slower growth resulting from Synchrony's credit actions, and how this dynamic impacts new partnership competition. He also asked about plans for the PPPCs if the proposed late fee regulation is ultimately rescinded.

Answer

President and CEO Brian Doubles emphasized that credit actions were taken transparently and collaboratively with partners, whose interests are aligned through the RSA. He stated that if the late fee rule is rescinded, Synchrony would not make immediate changes but would engage in transparent discussions with partners to determine the best path forward. EVP and CFO Brian Wenzel added that 2024 was the company's second-highest purchase volume year, framing the slowdown as a deliberate, short-term action.

Jeffrey Adelson asked about the potential for loan growth to re-accelerate next year and how the company is tracking against its initial $650-$700 million PPPC mitigation target.

Answer

EVP and CFO Brian Wenzel clarified that credit actions are ongoing strategies, not one-time events, and that an unwinding of these actions could potentially happen in late 2025, depending on performance. He stated the current growth trend is not long-term. Regarding the PPPC target, Wenzel reiterated that performance is generally in line with expectations and that the core business is performing slightly better, but the ultimate point of neutrality for the late fee rule impact has not changed.

Jeffrey Adelson from Morgan Stanley asked for an update on the Mr. Cooper transaction, including synergy tracking and the 65% recapture assumption. He also inquired about early trends in Redfin's mortgage and title attach rates post-close.

Answer

CEO Varun Krishna confirmed the Mr. Cooper deal is on track for a Q4 close, with regulatory approvals progressing as expected. CFO Brian Brown added that their conviction in the synergy numbers grows daily. Regarding Redfin, Brown reported positive early trends, with an increase in site traffic and 'exciting green shoots' on attach rates, which have improved from historical levels since the loan officers were successfully transitioned to Rocket.

Jeffrey Adelson requested more detail on how origination capacity grew "well north of $150 billion" and asked for potential figures on expense savings in the second half of the year if mortgage volumes are weak. He also asked about the growth of the home equity product.

Answer

CEO Varun Krishna attributed the capacity growth to AI, calling it a "clear strategic bet" that creates limitless potential by giving team members "superpowers." CFO Brian Brown added that this presents option value to reduce fixed costs in H2 if necessary. Regarding the follow-up, Brown confirmed the home equity loan product had another record quarter with consistent quarter-over-quarter growth.

Jeffrey Adelson asked for an analysis of the Q1 revenue guidance drivers, including gain on sale and origination volumes, and inquired about the growth outlook and market share goals for the remainder of 2025.

Answer

CEO Varun Krishna expressed optimism for 2025, citing positive housing market indicators. CFO Brian Brown detailed that the Q1 guide is driven by higher year-over-year volume, with gain on sale margins expected to be consistent with Q4. Varun Krishna added that Rocket's guidance shows sequential growth, contrasting with an expected industry decline.

Jeffrey Adelson inquired about the primary drivers for Rocket's Q4 revenue guidance, asking for a breakdown of volume versus gain on sale margin expectations and the underlying interest rate assumptions.

Answer

CEO Varun Krishna attributed the outlook to typical Q4 seasonality and recent interest rate increases, but highlighted that the guide represents 27% year-over-year growth and continued market share gains. CFO Brian Brown added that they anticipate a slight expansion in gain on sale margin, with some conservatism built in for potential holiday-season pricing pressure from competitors. Brown confirmed the guidance incorporates the volatile start to the quarter.

Jeffrey Adelson of Morgan Stanley asked why the Q3 origination guidance implies a potential decline despite positive industry forecasts and sought clarification on whether the recent MSR hedge signaled a change in strategy.

Answer

Chairman, CEO & President Mat Ishbia explained the origination guidance reflects the real-world impact of June and July interest rates on the purchase market. He reiterated that the derivative trade was an opportunistic move to 'win' in the current market and not a fundamental shift away from their previously stated hedging philosophy.

Jeffrey Adelson asked for clarity on the assumptions embedded in the strong Q2 production outlook and inquired about UWM's view on recent M&A in the mortgage space and its own appetite for acquisitions.

Answer

Chairman and CEO Mathew Ishbia attributed the strong Q2 guidance to sustained investments, broker channel growth, and upcoming technology rollouts, noting the forecast does not depend on lower interest rates. Regarding M&A, Ishbia reiterated UWM's preference for a 'build versus buy' strategy, emphasizing organic growth and in-house technology development over large acquisitions, though he stated the company remains opportunistic.

Jeffrey Adelson from Morgan Stanley asked for an update on the potential impact of the new political administration on the regulatory landscape. He also inquired about the strategy for increasing the stock's public float, including the possibility of acquisitions.

Answer

CEO Mathew Ishbia expressed an "extremely bullish" view, calling potential new leadership at the FHFA and CFPB "massive wins" that would create upside for the industry. Regarding the stock float, he acknowledged its importance but noted the current low stock price is a constraint. He confirmed they evaluate all opportunities, including acquisitions, but stressed UWM's success is not dependent on them.

Jeffrey Adelson from Morgan Stanley questioned how much of the Q4 volume guidance is a follow-through from Q3 rate locks, given the subsequent decline in the refi index. He also asked for an early read on the uptake of the new Cash-Out 90 product.

Answer

Chairman and CEO Mathew Ishbia stated that UWM's fast closing times mean Q3 volume was from September locks, not a long pipeline. He expressed confidence in the Q4 guidance of $34B-$41B, accounting for seasonality and market conditions. He added that the Cash-Out 90 product is a great differentiator, though its volume is currently tempered by higher rates.

Jeffrey Adelson of Morgan Stanley asked for an update on the timeline for converting Capital One's debit cards to the Discover network and inquired about discussions with large merchants regarding this change.

Answer

Richard Fairbank, Founder, Chairman & CEO, reported that pilot conversions began in June, with the majority of customers expected to be on the Discover network by 2025 and a full conversion of purchase volume by early 2026. He noted that this move facilitates building more direct-to-merchant relationships, and those conversations are an ongoing part of their broader strategy.

Jeffrey Adelson asked for an update on Capital One's preparations for the CFPB late fee rule, inquiring about the company's latest thinking and any mitigating actions that have been taken in anticipation of its implementation.

Answer

Chairman and CEO Richard Fairbank stated that the company is awaiting the outcome of industry litigation to determine if and when the rule will take effect. He reiterated that any response will prioritize preserving Capital One's customer-first franchise, loyalty, and credit resilience. He confirmed that the only action taken to date has been the deferral of a few investments. If the rule is ultimately not implemented, the company would likely proceed with those investments over time.

Jeffrey Adelson asked if Navient would consider strategic actions for its Earnest business, such as a sale, if the in-school graduate market opportunity expanded. He also asked about the medium-term path for the FFELP NIM to return to the 80-100 basis point range.

Answer

CEO David L. Yowan stated that considering strategic actions for Earnest is premature and that the company will share more on its strategy in the second half of the year. Regarding the FFELP NIM, he explained that returning to the 80-100 bps range would require a couple of interest rate cuts followed by a period of rate stability to benefit from floor income.

Jeffrey Adelson requested an update on new product expansion, including any learnings from the testing phase, and asked if Navient has sized the portion of the Grad PLUS market that would fit its underwriting criteria.

Answer

CEO David Yowan indicated it was too soon to detail new products but said they would leverage Earnest's core strengths in simplified debt management and customer experience. Regarding Grad PLUS, he confirmed internal analysis has been done and the opportunity could be substantial, but declined to share specific figures as it depends on final policy changes.

Jeffrey Adelson inquired about the drivers behind rising delinquency rates in the private lending portfolio and whether there has been any credit impact from the end of the federal student loan on-ramp program.

Answer

CFO Joe Fisher clarified that while late-stage delinquencies have seen an uptick, early-stage delinquencies are stable and charge-off expectations remain consistent. He noted a temporary increase in forbearance from disaster relief will slightly lower Q4 delinquencies before normalizing. Regarding the federal on-ramp, he stated that no credit impact has been observed in the FFELP portfolio, as the company has been preparing for the return to repayment for several years.

Jeff Adelson sought more specific details on the timeline for achieving the company's significant expense reductions and asked about the competitive dynamics and capital allocation strategy for the in-school loan origination business.

Answer

CEO David L. Yowan detailed three parallel initiatives for expense reduction: outsourcing (well underway), BPS divestment (timing dependent on the transaction), and corporate infrastructure reduction (extending into 2025). He clarified that while employee count will drop 80-90%, the expense reduction is about removing entire categories of cost. Regarding in-school lending, Yowan stated Navient remains focused on its specific 'swim lane' of high-credit-quality, high-balance borrowers and will not chase volume in other segments, even as competitors exit.

Jeff Adelson requested more detail on the timeline for achieving expense reductions and asked if the 80-90% headcount reduction implies a similar drop in compensation expense. He also asked if a competitor's exit from the in-school lending market has altered Navient's strategy.

Answer

CEO David L. Yowan detailed three timelines for cost-cutting: outsourcing (well advanced), BPS divestment (depends on the transaction), and corporate overhead (longer tail into 2025). On in-school lending, he stated Navient will remain disciplined, focusing on its target 'swim lane' of high-credit quality borrowers rather than chasing volume in other segments, though it will seek to capture more share within its chosen niche.

Jeffrey Adelson of Morgan Stanley posed two questions: one on how SoFi would position its student loan business if Congress caps federal programs, and another on the sustainability of the Loan Platform Business's take rate.

Answer

CEO Anthony Noto said SoFi would 'absolutely capture that opportunity' by expanding its in-school lending product, which offers attractive returns. CFO Chris Lapointe addressed the take rate, attributing its recent increase to strong investor demand creating pricing power. He noted the rate will fluctuate as the business mix evolves, particularly as SoFi addresses the large market of previously declined applicants.

Jeffrey Adelson of Morgan Stanley asked for specific plans to accelerate the SoFi Invest business, questioning if it's a marketing or feature-driven strategy, and inquired about a potential reentry into cryptocurrency.

Answer

CEO Anthony Noto identified brand awareness as the biggest driver for SoFi Invest, noting 70% of its growth already comes from existing members. On cryptocurrency, he stated that once regulatory clarity is provided, SoFi plans to be 'incredibly aggressive' and expand well beyond trading into areas like custody, clearing, and lending.

Jeffrey Adelson requested more details on the loan platform business, including its growth potential, the economics of its take rate, and whether it would reduce emphasis on traditional loan sales.

Answer

CFO Chris Lapointe clarified that the Fortress deal is part of the current run rate and that SoFi has a strong pipeline for Q4 and 2025. He stated that demand for traditional loan sales remains high and the loan platform is an incremental business for loans SoFi would not otherwise originate. He advised against a simple take-rate calculation, as fees vary by partner. CEO Anthony Noto reiterated that the platform engages new partners and is incremental to existing sales channels.