Perry Beberman: No, I appreciate the direct question. You’re right, we are definitely expecting fourth quarter to be around 8% and reiterate that’s 100 basis points up linked quarter. Some of that is a seasonal increase. And then the other half that, I’ll say, is a combination of the macro conditions, effective the consumer’s ability to pay and the denominator effect. So when you think about that, yes, you can extrapolate that into next year because while seasonality will move around, I think that pressure on the consumers’ ability to pay will continue to play out throughout next year as well as the denominator effect as we will have smaller vintages from this year carrying into next year, and next year’s vintage will also be smaller as a result.
So that will put pressure on the net loss rate, and I don’t think any of us are thinking that inflation is abating that quickly. And the effects of higher interest rates, there’s a lagged effect of what that means to the consumers in terms of higher cost of auto loans, home loans, credit card debt. And their debt is rising for them, so they’ve got more debt to pay with higher interest costs and at the same time, student debt repayment is occurring. So I think there’s going to be this play out for the next year, which is definitely going to put it in the higher end of their range.
Jeff Adelson: Okay. Great. And just to circle back on the NIM. I know this was seasonality lower reversals and it’s going to trend back down next quarter on seasonality as well. I think we’re all pretty surprised by the strength in the NIM though. You’ve discussed yourself being a little bit more neutral to rates. I know there’s a lag effect with the Fed here to the prime rate. But thinking forward, is there a case to be made that maybe you’ve got a structurally higher NIM or card yield going forward with people maybe revolving more? Or are you still more in the camp of hanging around this low 19% level?
Perry Beberman: Yes. I’m definitely more in the camp of hanging around the low 19% level. We’ll give more guidance on that as we get into next year. But when you think about what’s going to happen in the fourth quarter, you’re going to get a seasonal drop. And as losses remain elevated — remember, this quarter, losses were 100 basis points below last quarter. And now next quarter, they’re going to go back up. So you’re going to have that, the purification or reversal of interest and fees impacting the fourth quarter and of losses remain elevated through next year. That’s going to put pressure on there. So — and then as we bring in smaller vintages, that will also affect higher quality vintages that may have a little bit of less rollover, maybe a lower pricing. So I would not want to speculate that we have a structurally higher net interest margin going forward.
Operator: Our next question comes from David Scharf from JMP Securities.
David Scharf: Thank you, taking for my question wanted to circle back to just some of the planned mitigation efforts. And as it relates sort of timing and ability to kind of roll things out, not looking for you to name names. But I’m wondering, as you reflect on maybe your top 20 retailer partners and the discussions you’ve had thus far, is there sort of an unanimity in their reactions or embracing of certain mitigation efforts or pushback on others? I’m just wondering, is there a wide spectrum of support and resistance to various strategies among your partners? Or do you think that there’s a pretty uniform buy-in to what you’re thinking and that, therefore, kind of implementation should be pretty smooth?
Ralph Andretta : So let me start, and I’ll let Perry finish up. Just a couple of things. So our partners and our interests are aligned to remain profitable during any kind of regulatory change. So that said, they are focused on making sure that we would do the right things for their cardholders, and we can still provide credit that their baskets at the point of sale are as robust as it can be, given the challenges we would have, underwriting a sort of population with just an $8 late fee. So they are aware of it. They understand our challenges. We understand their challenges. And we’re working through the impacts of the changes we will need to make to keep them profitable in us as well. And that may vary from partner to partner, but the collaboration and understanding of the challenge is consistent.
David Scharf : Got it. So — and really, what I was getting at is I didn’t know if there was maybe a uniform pushback on origination fees whereas others were more leaning towards promotional and whatnot. But obviously, it sounds like everybody is rowing in the…
Ralph Andretta : I think the other thing to remember too is most of our — partnership contracts have a material change in law and provides us to make — allows us to make adjustments. So — and that’s what we’re working through with them.
Perry Beberman : Yes. And I’ll add to what Ralph just said. If you think about top 20 partners, they’re all different, whether they’re a big ticket partner where they’re, I’ll say, a little less impacted by the late fee, but still impacting a way and then so you can pull levers on things like promotional fees, or others that are more private label concentrated and the soft goods who are more impacted. Those require different things. So each partner, because each of them are different in terms of their business model, the size of the average balance, the customer they’re attracting, they all require nuanced and different approaches. And the team is doing a really good job of partnering with them. As Ralph said, it’s a partnership we’re trying to protect their economics, protect our economics and really trying to figure out how to underwrite as many customers as we can and still provide the right return for our shareholders.
Ralph Andretta : Yes. I think one of the — as you look at what’s facing us in terms of the cost to collect, it’s really a cost to lend. And the unintended consequence here is we may not be able to lend in the population we lend to today. So that I believe is going to be casualty of this late fee legislation, and that’s unfortunate because people will not be able to borrow as they do today because the legislation has made it riskier for people to borrow.
David Scharf : Right. Quick follow-up. I think you mentioned about 50% of credit sales are co-branded now. And can you just remind us what the mix is in terms of balances at the end of the quarter, private label versus co-brand?
Perry Beberman : We are about a third of our portfolio average balances are co-brand.
Operator: Our next question comes from Bill Carcache from Wolfe Research. Please go ahead
Bill Carcache : Thanks. Good morning, Ralph and Perry. It’s great to see the total company CET1 ratio disclosure. By our math, that metric was actually negative when you took over, Ralph, which is real testament to the significant capital that you’ve all accreted since taking over from the prior management team. But what’s the right level of CET1 to target as you look forward from here? And then if you could layer into your response how you’re thinking about the RWA inflation associated with Basel III endgame, which many of your peers are working through, but it’d be great to hear whether that’s impacting how you think about capital.
Perry Beberman : Yes. Thanks for the question, and thank you for acknowledging the great work that Ralph has done under his leadership.
Ralph Andretta : Bill, I’ve heard today.
Perry Beberman : When you think — let’s start with the Basel III endgame and the implications, that only impacts the bank’s over $100 billion in assets, and we are well below that. So for us, it could be opportunistic as a number of the big players where they look at new opportunities, new deals to sign with partners. We’ll have a different degree of capital requirements. So that for us is not an impact. As it relates to our ongoing targets, that’s something that we continue to develop. We’re not all the way home yet. We think about the stress models that go into figuring out what the right target is, look at your risk ID factors that go into target. If you think about what traditional disciplined banks do, that is how we’re going to approach this.
And in the environment we’re in right now, we’re certainly not all the way to where we want to go, and then we will communicate more in 2024, probably during our investor event to give longer-term targets around where we will be and what our buying and constraint is.
