Synchrony Financial (NYSE:SYF) Q4 2023 Earnings Call Transcript

John Pancari: Okay, great. Thank you.

Brian Wenzel: Thanks, John. Have a good day.

Operator: Our last question will come from Mark DeVries with Deutsche Bank. Please go ahead.

Mark DeVries: Yeah, thanks. I wanted to ask about your thoughts around preferred equity issuance for this year. Brian, does that need to be additive to total capital levels or does it free you up to replace some of that with or return some common? Talk a little bit about potential timing, what you kind of need to see from a market perspective and also how much you might look to issue?

Brian Wenzel: Yeah, thanks for the question, Mark. As we look at the capital stack, we fully developed our Tier 2. We have about 75 basis points, give or take, of capacity in Tier 1, which puts the max amount you probably can do just to reach the target level for Tier 1 of about $750 — $700 million to $750 million, ultimately that you’d want to do. We don’t necessarily think of that relative to common equity as more as we want to develop, most certainly the most cost-effective capital structure that we want, the timing of which is going to depend upon market conditions. Rates throughout 2023 were incredibly high and wasn’t necessarily the best time to kind of issue it. We’ll look at how the markets develop in 2024 and whether or not there’s desire to invest or demand for the products.

And we’ll also look at the structure of whether or not that’s a more retail-oriented preferred stock or not. So there’s a number of different factors that go in. It just really goes into how do I fully develop all the levels of the capital stack from a regulatory standpoint.

Mark DeVries: Okay, great. And then just to follow up on kind of your updated thoughts on plans for how to deploy the capital created by the Pets Best sale.

Brian Wenzel: Yeah, I don’t think our priorities change. We generated some capital in ‘23 by making some adjustments. We’ll spend about 50 basis points of capital on the Ally transaction. We’ll generate about 80 basis points on the Pets Best sale and net of the investment that we’re taking back in IPH. So I think that kind of goes [on the pie] (ph). We will look to the priorities of organic growth, number one, maintaining the dividend, two, and then three, we’ll look either at share of purchases or if there’s other inorganic opportunities. Again, I think we’re very focused when it comes to inorganic opportunities. It has to be the right thing. It has to be priced incredibly well, which we feel we got with Ally Lending. And so we’ll be prudent when it comes to deploying that capital. But again, we’re not changing the strategy or the cadence because of the Pets Best transaction.

Mark DeVries: Got it. Thank you.

Brian Wenzel: Thanks, Mark. Have a good day.

Mark DeVries: Thanks.

Operator: Thank you. Thank you for your participation. You may disconnect your line at this time and have a wonderful day.