NEW YORK--(BUSINESS WIRE)--Fitch Ratings today affirmed the ratings of five U.S. consumer finance companies following a periodic peer rating review. The Rating Outlooks were Stable. Affirmed ratings include: Ally Financial Inc. (rated 'BB+'; Outlook Stable), American Express Company ('A+'; Outlook Stable), Discover Financial Services ('BBB+'; Outlook Stable), Navient Corporation ('BB'; Outlook Stable) and Synchrony Financial ('BBB-'; Outlook Stable).
In general, the rating affirmations and Stable Rating Outlooks reflect the companies' strong franchises and leading market positions, continued strong credit performance, appropriate risk-adjusted capital levels and increasingly diverse funding profiles. These strengths are counterbalanced by the companies' monoline business models, outsized exposures to consumer finance which is cyclical and sensitivity to economic conditions, and reliance on wholesale funding sources. Looking forward, potential sector-wide rating drivers could include the sensitivity of internet deposits to rising interest rates, increased regulatory scrutiny of consumer lending activities particularly from the Consumer Finance Protection Bureau and the likelihood of asset quality reversion over the coming years. For more information on issuer-specific rating rationales, please refer to the individual companies' rating action commentaries which have also been published today. Links to each rating action commentary are included at the end of this release.
In connection with the rating actions, Fitch has also published a special report entitled 'Consumer Finance Companies: Rating Attribute Analysis' which highlights the relative differences among credit card, private student loan, automobile loan/lease, installment loan and alternative financial service (AFS) subsectors based on their operating environments, company profiles, management and strategies, risk appetites and financial profiles. These factors correspond to those outlined in Fitch's 'Global Non-Bank Financial Institutions Rating Criteria' dated March 20, 2105.
Based on this attribute analysis, Fitch views consumer finance companies, on average, as being consistent with 'BB' category ratings, albeit with a fairly wide range around the average. The credit card lending subsector is viewed as best positioned, reflecting the strong franchises and leading market positions of many credit card lenders, favorable underlying secular trends, potentially more diverse earnings streams and higher levels of deposit and/or unsecured funding relative to consumer finance peers.
The auto lending subsector exhibits strong relative credit performance, reflecting the secured nature of the loans, the essential nature of the automobile for borrowers and a primary focus on super prime/prime borrowers. However, auto lenders typically employ relatively higher leverage, in part reflecting the higher quality of the underlying assets, but also the captive nature of many of the auto finance companies.
Private student lenders are benefiting from modest tailwinds including increasing underwriting discipline, strong demand for private student loans and reduced competition. However, there remains ongoing uncertainty surrounding regulatory and political scrutiny of the business, such as the dischargeability of loans in bankruptcy and programs designed to incentivize borrowers to consolidate their private student loans into lower cost federal loans.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--Fitch Affirms Ally Financial at 'BB+'; Outlook Stable (April 8, 2015)
--Fitch Affirms American Express at 'A+/F1'; Outlook Stable (April 8, 2015)
--Fitch Affirms Discover Financial at 'BBB+/F2'; Outlook Stable (April 8, 2015)
--Fitch Affirms Navient Corporation at 'BB'; Outlook Stable (April 8, 2015)
--Fitch Affirms Synchrony Financial at 'BBB-/F3'; Outlook Stable (April 8, 2015)
--Consumer Finance Companies: Rating Attribute Analysis (April 8, 2015)
--2015 Outlook: Finance and Leasing Companies (November 18, 2014)
--Global Bank Rating Criteria (March 2015);
--Global Non-Bank Financial Institutions Rating Criteria (March 20, 2015)
--Assessing and Rating Bank Subordinated and Hybrid Securities Criteria (January 2014)
Applicable Criteria and Related Research:
Consumer Finance Companies: Rating Attribute Analysis (Comparing Credit
Card, Private Student Loan, Auto, Installment Lending and Alternative
Financial Services Subsectors)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863547
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