Bill Carcache : Understood. That’s helpful. And separately, as you prepare for the potential late fee changes that you’ve given some details on, are there any costs associated with that you’d call out, whether they be onetime or recurring? And I guess how dependent are those costs on the rule getting litigated and whatever path that could take? Any thoughts around that would be helpful.
Perry Beberman : Yes. I mean that some of the issue is and some — I think some of the comments that have been provided to the CFPB. And we’re encouraged that we understand that they’ve been looking at the comments and hopefully, they contemplate the comments, as Ralph said, the cost to lend. But there are going to be some costs depending on what the rule comes out to implement those costs. If they put in certain things that require percent, the late fee can be max of 8% of balance or change in grades versus their system cost to making those changes. But then more so, when you think about the investment to pivot into other product adjacencies if we start to pull back in certain products that maybe are no longer as viable in a post CFPB rule change, there could be some cost to develop capabilities on that front.
Bill Carcache: Got it. Thank you for taking my questions.
Operator: Our next question comes from Dominick Gabriele from Oppenheimer. Dominick, your line is open. Please proceed.
Dominick Gabriele : Yes, good morning everybody. Thanks for taking for my question. Just following up on the last line of questioning. The CET1 total company target, I do appreciate that as well. Is it fair to say that your target would likely be slightly above the industry average for credit card issuers just given the profile of the credit profile of the company? That’s the follow-up.
Perry Beberman : I’ll answer that directly. Yes, that is a fair expectation.
Dominick Gabriele : Okay. Perfect. I thought that was an easy one. And Yes. When you think about — Perry, you’ve had some really good spending comments on this call. I know this is a huge focus for many investors on the trajectory of spend. Could you try to isolate for us the spending slowdown, specifically at partners only, not Bread spending in the fourth quarter, but what the partners that you have, that you’re talking to, what that year-over-year spend expectation is? For instance, is it 1%, 2%, 3% slowdown versus last year? How are they thinking about the magnitude of that spending slowdown?
Perry Beberman: Yes. I think I don’t want to speak to any one particular partner because I think it’s going to be varied by partner, by product category. So it’s really mixed by vertical. So I think as we commented you’re seeing some slowdown in some retail categories, some home furnishings year-over-year. So it’s really going to be interesting to watch consumers as they play into this fourth quarter and how they direct their holiday spend. I wish I can give you more context on that, but it probably wouldn’t be appropriate to comment at one particular partner.
Operator: [Operator Instructions] Our next question comes from Reggie Smith from JPMorgan. Please go ahead
Reggie Smith: Yes. Good morning, thank for taking a question. I’ve got a few here. You — I guess you suggested that loss rates would eat in ’24. It sounds like you expect inflation to kind of moderate to the back half of the year. What’s your, I guess, embedded unemployment assumption in that view? The loss rates were kind of peak in ’24. I guess new employment assumptions were 25 to fully appreciate that, right?
Perry Beberman: Well, so I’ve talked about this numerous times in the past, right? When we think about loss rates and where they’re at this year, unemployment is low. It’s really inflation-driven. And then as we talk about next year and the commentary of losses peaking next year, I’m talking a full year loss rate, but then even within some quarters, I expect the quarterly peak to happen next year. So we’re going to end up this quarter, coming quarter 8%. Next year, there could be some quarters like that. When you think about — it’s less about what the unemployment assumption is and more about inflation. Now I expect it to be a rotation of inflation pressure getting replaced by some modest uptick in unemployment. And I think that’s the outlook that everybody is looking at.
Now when we think about our reserve levels, we have — we weighed in scenarios, which include unemployment peaking over the next 24 months, an adverse number of 7.7%, severely adverse at 8.7%. That’s not what’s expected, right? It’s more of that baseline view, which does have unemployment getting up into the low 4s next year. And I think — so that’s what I’ll say, informing our base loss rate view would be that low to mid-4% unemployment with a — starting to have some moderation of inflation, but not expecting inflation to, say, fall off a cliff and come back in line that quick. And I think that’s the sentiment that’s starting to emerge is that inflation is going to be hanging around a little bit longer. But the good news is that means unemployment should stay in a good place for longer.
And that’s the idea of a soft landing. And I think from all the outlooks that now getting updated, it’s just pushing out that view so that we expect that to be the case. So it’s just a matter of how long this environment persists.
Reggie Smith: Understood. That makes sense. You made a comment in regards to the impact of late fees and you guys, you — I guess, you talked about the impact relative to your peers. And I was curious when you say peers, is that just kind of Synchrony? Or is it the broader credit card issuer space? Because I think you suggested that your proportion of late fees is not materially different than Synchrony. And so I was just trying to square those comments.
Perry Beberman: We’ve always said that if somebody is asking about us relative to peers that we have a higher mix of private label and we underwrite deeper, and then — which means we have more exposure to that. And then if you’re asking specifically about Synchrony, what we said it, whatever it is Synchrony. And I say plus, that means more not in line with them more because of the fact that we have a higher mix of private label card and underwrite deeper than they do.
Reggie Smith: Okay. That’s fair. And then last question is kind of a bigger picture question. Your cycle loss rate guidance. I was curious how you arrived at 6%, given your rich NIMs, it doesn’t appear to be a level that maximizes profit dollars, but maybe I’m wrong, like how are you thinking about that? And I guess does it does that create unnecessary constraint on the business, if that makes sense.
Perry Beberman: That’s a really good question, and one that we grapple with internally. But I think when you start to think about — well, let’s talk about the cycle, right? The cycle is typically 10 years, it could be 15 years through the cycle is to go peak to peak, trough to trough, average it out. And it’s been a good marker for us in terms of guiding in terms of — we’re going to have some periods when we’re above that, somewhere we’re below it. And you can see right now, it’s not like we’re closing off these tickets, we are still delivering very strong margins, and I appreciate you commented on that. But there’s also an element of capital, right? So you need to stress your book. So you start to be more disciplined at the bank level and total company level and making sure that your capital ratios, capital targets are aligned if we underwrote a lot deeper, so let’s go through the cycle of 9% as a new target, well, that means the capital levels that would be at to help would be far in excess of that.
