Zacks Industry Outlook Highlights Capital One Financial, Ally Financial and OneMain

In This Article:

For Immediate Release

Chicago, IL – January 29, 2025 – Today, Zacks Equity Research discusses Capital One Financial Corp. COF, Ally Financial Inc. ALLY and OneMain Holdings, Inc. OMF.

Industry: Consumer Loan

Link: https://www.zacks.com/commentary/2404379/3-stocks-to-watch-from-the-challenging-consumer-loan-industry

The Zacks Consumer Loans industry continues to witness weakening asset quality. Also, though the Federal Reserve has started lowering rates, prospects of significant interest rate cuts are less on persistent inflation and a resilient labor market. So, relatively high interest rates are here to stay, and demand for consumer loans will likely be modest.

Yet, easing lending standards, stabilizing consumer sentiments and digitizing operations will support consumer loan providers. Hence, industry players like Capital One Financial Corp., Ally Financial Inc. and OneMain Holdings, Inc. are worth keeping an eye on.

About the Industry

The Zacks Consumer Loans industry comprises companies that provide mortgages, refinancing, home equity lines of credit, credit card loans, automobile loans, education/student loans and personal loans, among others. These help the industry players generate net interest income (NII), which forms the most important part of total revenues.

Prospects of the companies in this industry are highly sensitive to the nation's overall economic condition and consumer sentiments. In addition to offering the above-mentioned products and services, many consumer loan providers are involved in businesses like commercial lending, insurance, loan servicing and asset recovery. These support the companies in generating fee revenues. Furthermore, this helps the firms diversify revenue sources and be less dependent on the vagaries of the economy.

3 Major Themes Influencing the Consumer Loan Industry

Asset Quality: For most of 2020, consumer loan providers built additional provisions to tide over unexpected defaults and payment delays due to the economic downturn resulting from the COVID-19 mayhem. This considerably hurt their financials. However, with solid economic growth and support from government stimulus packages, industry players began to release these reserves back into the income statement.

Lately, high inflation and cost of living are taking a toll on consumers' ability to repay loans. Thus, consumer loan providers are building additional reserves to counter any fallout from unexpected defaults and payment delays. This is leading to a deterioration in industry players' asset quality, and several credit quality metrics have crept up above pre-pandemic levels.