- Company Name
- Synchrony Financial
- Stock Symbol
- Class Period
- October 21, 2016 to November 1, 2018
- Motion Deadline
- January 1, 2019
- District of Connecticut
The complaint charges Synchrony and certain of its officers with violations of the Securities Exchange Act of 1934. Synchrony is the largest provider of store-branded credit cards in the United States. The Company’s biggest account is discount retailer Walmart, which accounts for approximately 19% of the Company’s store-branded credit card portfolio.
The complaint alleges that during the Class Period, defendants falsely represented that Synchrony’s consistent and disciplined underwriting practices had led to a higher quality loan portfolio than those of its competitors. In truth, Synchrony had relaxed its underwriting standards and increasingly offered private-label credit cards to riskier borrowers to sustain growth. Synchrony also knew that its key retail partners, including Walmart, were dissatisfied with the Company’s underwriting changes, which was jeopardizing the Company’s partnerships with these retailers, and that Walmart, in particular, was in discussions with one of Synchrony’s competitors, Capital One, to replace Synchrony as its exclusive branded credit card provider. As a result of this information being withheld from investors, the price of Synchrony stock was artificially inflated during the Class Period to more than $40 per share.
The truth about Synchrony's credit standards began to be revealed on April 28, 2017, when the Company announced disappointing first quarter 2017 earnings results driven by poor loan performance. This news caused Synchrony's shares to decline by $5.25 per share, or nearly 16%. Following this disclosure, the Company represented that it had tightened credit standards, but falsely characterized those underwriting changes as modest. In fact, the Company had made significant modifications to its underwriting policies, but concealed that these modifications were damaging its relationships with its retail partners, including Walmart.
On July 12, 2018, media sources reported that Walmart was considering moving its branded credit card business from Synchrony to Capital One. Later in July, media sources confirmed that Walmart had chosen Capital One to replace Synchrony. Together these two disclosures caused Synchrony's shares to decline nearly 14%. Then, on November 1, 2018, Walmart filed a lawsuit against Synchrony alleging that the Company intentionally underwrote the Walmart/Synchrony credit card program in a way that exposed the program to significant unique credit risk and harmed Walmart. The complaint stated that Walmart was seeking damages “in an amount . . . estimated to be no less than $800 million.” On this disclosure, the price of Synchrony stock declined by over 10% to close at $26.43 per share on November 2, 2018.