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What's happening
Shares of OneMain Holdings Inc (OMF -1.80%) are are down 38% as of 1:22 p.m. EST after the company slashed guidance in its third-quarter earnings. Meanwhile, shares of Fortress Investment Group (NYSE: FIG), which holds a majority stake in the company in its managed funds, are also down by about 3.5%.
So what
OneMain Holdings slashed guidance for the full-year 2016 and 2017 with respect to the growth in its loan portfolios and its preferred measure of earnings. The table below summarizes the change in guidance.
| Metric |
Previous Guidance |
New Guidance |
|---|---|---|
|
Receivables growth in 2016 |
10% to 15% |
5% |
|
Receivables growth in 2017 |
10% to 15% |
5% to 10% |
|
C&I adjusted diluted EPS in 2016 |
$4.20 to $4.70 |
$3.60 to $3.70 |
|
C&I adjusted diluted EPS in 2017 |
$5.60 to $6.10 |
$3.75 to $4.00 |
Source: OneMain's 3Q 2016 earnings presentation.
The company called out increasing competition for loans to borrowers with sub-660 FICO scores for slowing receivables growth, specifically mentioning credit card companies, which have targeted lower-FICO borrowers. While OneMain isn't a credit card issuer, its customers can use cards as a substitute for its core small-dollar unsecured and secured loans.
Now what
The company was previously known as Springleaf. It adopted its new name after closing on the acquisition of OneMain -- then its biggest competitor -- in 2015. Integrating these two companies is proving to be a challenge.
In prepared remarks, one executive noted that "the amount of change we asked of our branch team members simply kept them from bringing a historical level of focus on new business and collections," referring to the company's employees engaged in origination and collection.
That would suggest that weakness in guidance may be short-lived, but the market isn't buying it today, as evidenced by the sharp drop in the company's stock.
