Walmart Sues Synchrony for $800 Million as Card Split Sours

(Bloomberg) -- Walmart Inc.'s divorce from credit-card issuer Synchrony Financial is spilling into court as negotiations falter over whether to shift billions of dollars in balances to the retailer's new partner, Capital One.

In a heavily redacted lawsuit filed Thursday in Arkansas federal court, Walmart asked for a jury trial and said it's seeking damages of at least $800 million. It accused the lender of breaching their agreement for credit cards issued to Walmart's shoppers.

Synchrony broke an “implied promise” that it wouldn't harm Walmart's ability “to receive fruits of the contract,” the retailer wrote in the complaint. In a statement, Synchrony called the suit “baseless” and said it plans to file substantial claims against Walmart.

Walmart announced in July it had selected Capital One Financial Corp. to begin issuing its private-label and co-brand credit cards beginning next year after partnering with Synchrony on the portfolio for nearly 20 years. Synchrony has said it's negotiating whether to sell the $10 billion in balances on the Walmart portfolio to Capital One or retain it.

Synchrony shares dropped 8.5 percent to $26.93 at 10:19 a.m. in New York. The stock has declined almost 23 percent since July 11 -- the day before Bloomberg News first reported that Walmart was weighing a switch for its credit-card portfolio.

In its statement, Synchrony accused Walmart of walking away from the negotiations.

Fighting Back

“This lawsuit is nothing more than an attempt by Walmart to exert leverage and avoid the contractually defined process for valuing the loan portfolio that Synchrony has serviced,” Synchrony said. It pledged to bring a claim that will “demonstrate Walmart failed in the most basic elements of our agreement, including its promotion of the card program both in stores and online.”

In its own statement Friday, Walmart said it tried to avoid litigation, but “Synchrony has failed to take responsibility for its actions. We fully expect Synchrony to manufacture counterclaims in an effort to shift the focus away from its own conduct.”

The switch to Capital One was a blow to Synchrony, as the partnership with Walmart accounted for more than 10 percent of the interest and fees the bank earned on its loans last year.

Synchrony has said it could instead keep the portfolio, converting qualifying customers to general-purpose credit cards that can be used anywhere. In a regulatory filing, it predicted that regardless of whether it sells or holds, its decision will be accretive to earnings relative to renewing the contract with Walmart.

To contact the reporter on this story: Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, David Scheer, Steve Dickson

©2018 Bloomberg L.P.