BTIG Downgrades Affirm and PROG Holdings Amid Credit Risks and Competition from Traditional Lenders.

BTIG downgraded Affirm and PROG Holdings, citing credit risks and increased competition from traditional lenders. Meanwhile, BTIG upgraded Bread Financial and Synchrony Financial to Buy, and lifted Ally Financial to Neutral. The brokerage expects prime lenders to loosen underwriting standards, benefiting Bread and Synchrony, but putting pressure on fintech and non-prime lenders. BTIG remains cautious on the consumer backdrop due to strict underwriting, rising unemployment, and potential disruptions from tariffs and AI.

BTIG has downgraded shares of Affirm and PROG Holdings ahead of the second-quarter earnings, citing concerns over weakening credit trends and increased competition from traditional lenders [1]. The brokerage also upgraded Bread Financial and Synchrony Financial to Buy, and lifted Ally Financial to Neutral, reflecting a more stable fundamentals and a shift in industry dynamics [2].

BTIG expects prime lenders to loosen underwriting standards after a period of conservatism, which could benefit companies like Bread and Synchrony. Both firms are using improved pricing power to expand credit access while maintaining risk-adjusted margins. This puts pressure on fintech and non-prime lenders such as Affirm and PROG, which BTIG now sees at a competitive disadvantage [1].

“Traditional prime point of sale finance providers will be taking more share across the credit spectrum,” analysts wrote, warning that Affirm and PROG could lose ground as risk appetite returns to the banking sector [1]. Despite some signs of resilience, BTIG remains cautious on the broader consumer backdrop. Credit normalization at lenders has more to do with strict underwriting than improving household finances [1].

Consumers are increasingly leaning on credit cards to manage expenses, while payment rates have slipped. The resumption of federal student loan payments also poses a drag, with about 45 million borrowers facing monthly outlays of around $300, with nearly a third already delinquent [1]. While credit losses have stabilized in recent months, BTIG warned the outlook remains fragile. Wage growth is likely to slow, unemployment could rise, and tariff risks or AI-related disruptions could weigh further on household finances [1].

Synchrony Financial, upgraded to Buy by BTIG, is expected to regain market share in the point of sale finance sector. The company plans to capitalize on revised pricing strategies in 2024, which is anticipated to help it attract a broader customer base and enhance its market position [3]. Analysts indicate that Synchrony is poised to benefit from a more relaxed underwriting approach, linked to improved credit performance [3].

Bread Financial, also upgraded to Buy, has benefited from increased pricing over the past year, allowing it to open its credit boxes and to lend to lower-credit customers while keeping better risk-adjusted margins [2].

Ally Financial, lifted to Neutral, may see its net interest margin beat the consensus estimate after the bank aggressively cut deposit rates. The company's net charge-offs are expected to improve, although this improvement appears to be anticipated by the market [2].

The downgrades of Affirm and PROG reflect concerns about competition from traditional credit card providers and other fintechs, as well as potential margin pressure due to slower gross merchandise value growth [2].

BTIG's cautious outlook on the consumer backdrop underscores the fragility of the current credit environment. Despite recent improvements, the potential for wage slowdowns, rising unemployment, and economic disruptions could weigh on consumer finances and credit performance.

References:
[1] https://www.investing.com/news/stock-market-news/btig-downgrades-affirm-prog-holdings-on-credit-risks-4134052
[2] https://seekingalpha.com/news/4467102-synchrony-bread-ally-upgraded-affirm-prog-cut-at-btig
[3] https://www.gurufocus.com/news/2974030/syf-stock-upgraded-to-buy-as-synchrony-shows-growth-potential-syf-stock-news