COF Capital One Financial Corporation

Storm clouds are gathering on the consumer-credit horizon.

Lenders and ratings firms are sounding alarms over weakening performance of three major areas of consumer credit—credit cards, auto loans and student loans—suggesting that a new round of borrower delinquencies and losses for financial institutions could be on the way.

Synchrony Financial, the largest retail-store card issuer by purchase volume and balances, on Tuesday increased its forecast for losses over the next 12 months and said it was building up reserves for future losses, according to a company filing. The lender said it expected net charge-off rates over that period to increase by 0.20 to 0.30 percentage points.

That sent tremors through a variety of financial stocks with exposure to the consumer. While Synchrony's stock was down about 12% by midday Tuesday, Capital One Financial Corp. fell about 6% and Ally Financial Inc. was down nearly 4%.

In detailing the company's changed outlook at a Morgan Stanley financial-services conference Tuesday, Brian Doubles, Synchrony chief financial officer, cited challenges in late-stage delinquencies as the main reason. "We expected to see some softening," he said. "We weren't sure when it was going to come and I think we're starting to see some of that."

Mr. Doubles added that the ability of card holders to get back on track with payments after falling behind has been "challenged all year."

Granted, any increase in delinquency or charge-off rates comes at a time when these measures of stress are near record lows. Yet that also has many within financial services expecting that a turn in the credit cycle will eventually have to occur. So they are watching any signs of stress, particularly among more stretched consumers.

(END) Dow Jones Newswires

June 14, 2016 14:05 ET (18:05 GMT)

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