Encore Capital Group Inc
NASDAQ:ECPG
Earnings Call Analysis
Q3-2023 Analysis
Encore Capital Group Inc
The company experienced an initial phase of reduced cash generation due to lower consumer spending, credit card balances, and charge-off rates, which resulted in a decreased market supply. However, as consumer behavior began to normalize, the firm observed higher portfolio purchases and improved pricing over recent quarters, leading to a resumption in cash generation growth, a positive trend expected to continue.
The third quarter represented another strong period for U.S. portfolio purchasing with attractive returns. Further, the collections performance remained stable across key markets, falling in line with expectations. However, small adjustments to the Expected Credit Loss (ECL) impacted earnings negatively, with interest expenses of $51 million being flat sequentially but up from the previous year due to increased interest rates and higher debt balancing stemming from higher portfolio purchasing. Collections shortfall and forecast changes carved out $17 million from the revenues and reduced earnings per share by $0.60. The company's Earnings & Collections (ERC) at quarter's end grew by 8% compared to the previous year, reaffirming the company's focus on a long-term financial perspective.
Encore has fortified its balance sheet, transitioning it into a robust position when compared to pre-pandemic levels. This balance sheet includes a unified global funding structure, diversified financing sources, extended maturities, and managed leverage, bolstering the company's ability to fund future portfolio purchasing opportunities against a backdrop of elevated interest rates and challenging bond market conditions. Strategically, the company has secured a $175 million facility backed by U.S. receivable portfolios, optimizing its financial flexibility and supply pipeline prospects for 2024. The minimized leverage is expected to stabilize with the company's collections environment having leveled off.
Encore highlights its leading position in the U.S. debt purchasing market, underscoring the market's size and potential returns. Best-in-class collection ability and prudent capital allocation are considered key differentiators, granting them competitive advantages. They maintain a well-diversified global balance sheet, allowing capital reallocation to optimize returns. With a disciplined purchasing approach, the company crafted an $8 billion ERC. These strategic pillars, combined with a strong operational focus, position Encore to capitalize on the U.S. market's portfolio purchasing opportunities, expecting a record year in 2023 for capital deployment with strong returns and a more attractive European market anticipated in the future.
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Good day, everyone, and thank you for standing by. Welcome to the Encore Capital Group's Quarter 3 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today, Bruce Thomas, VP of Global Industrial Relations. Bruce, please go ahead.
Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Third Quarter 2023 Earnings Call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Jonathan Clark, Executive Vice President and Chief Financial Officer; and Ryan Bell, President of Midland Credit Management.
Ashish and John will make prepared remarks today, and then we'll be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the third quarter of 2023 and the third quarter of 2022. In addition, today's discussion will include forward-looking statements subject to risks and uncertainties. Actual future results could differ materially from these forward-looking statements.
Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings presentation, which was filed on Form 8-K earlier today.
As a reminder, this conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer.
Thanks, Bruce, and good afternoon, everyone. Thank you for joining us I'll begin today's call with a few Q3 highlights. The third quarter was another period of strong purchasing in the U.S. at attractive returns for our MCM business, which continues to thrive.
The continued growth in U.S. portfolio supply driven by credit card lending growth and rising charge-off rates has led to improved portfolio pricing and returns. As a result, we deployed $179 million in the U.S. in Q3 at an attractive 2.4 purchase price multiple. Concurrent with the favorable purchasing environment in the U.S. Cabot continues to navigate challenging market conditions in the U.K. and Europe.
We continue to do what's right for long-term success of Encore, constraining Cabot deployments until returns become more attractive and investing instead in the stronger returns available in the U.S. market. In Q3, global collections were in line with expectations, as we continue to see normalized consumer behavior in a stable collections environment.
I'd also like to highlight our financing activity since the end of the third quarter. In October, amid challenging conditions in the capital markets, a strong balance sheet enabled us to tap an existing bond and also create a new U.S. facility that further enhanced our liquidity. John will provide more details on these accomplishments in a few minutes.
I believe it's helpful to reiterate the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts, which are an expected and necessary outcome of the lending business model. Our mission is to help create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts.
We do that by engaging consumers in honest, empathetic and respectful conversations. Our business is to purchase portfolios of nonperforming loans at attractive returns while minimizing funding costs. For each portfolio that we own, we strive to exceed our collection expectations, while maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus.
We achieved these objectives through our 3-pillar strategy. This strategy enables us to consistently deliver outstanding financial performance and positions us well to capitalize on future opportunities. We believe this is instrumental for building long-term shareholder value. The first pillar of our strategy, market focus, concentrates our efforts on the markets where we can achieve the highest risk-adjusted returns.
Let's now take a look at our 2 largest markets, beginning with the U.S. Changes to consumer behavior during the pandemic led to unusually low credit card balances and below average charge-offs, which in turn resulted in a reduced level of portfolio sales by banks. However, since early 2021, outstandings have been rising.
Revolving credit in the U.S. surpassed pre-pandemic levels in early 2022. Each month thereafter, the U.S. Federal Reserve has reported a new record level of outstands reflecting the steady growth in lending we have historically seen in the U.S. market.
The same normalizing consumer behavior that has driven increased demand for consumer credit in the U.S. and lending growth by the banks, has also led to growing charge-offs. Since bottoming out in late 2021, the credit card charge-off rate in the U.S. has been steadily rising and is now approaching pre-pandemic levels. U.S. consumer credit card delinquencies, a leading indicator of future charge-offs have also continued to rise and are now above pre-pandemic levels.
With both lending and the charge-off rate growing simultaneously in the U.S, we are seeing continued strong growth in the U.S. market supply and improving pricing. As a result, we expect 2023 to be a record year for portfolio sales by U.S. banks and credit card issuers.
With this favorable environment as a backdrop, our MCM business had another strong quarter of portfolio purchasing in Q3. MCM deployed $179 million at an attractive 2.4 purchase price multiple. The result of our disciplined purchasing approach amid an improving pricing environment.
Over the past 4 quarters, MCM has deployed $775 million and strong returns. To put that figure into proper context, MCM's current record for portfolio purchases for a full calendar year is $682 million in 2019. We see no signs of this favorable purchasing environment slowing down. In fact, the supply pipeline in the U.S. remains robust with MCM's fourth quarter purchasing expected to be above $200 million and a 2.4 multiple.
This would establish a new record for MCM annual purchases. We cannot overstate the importance of our differentiated multiples, which are indicators of higher returns and their expected impact on future financial performance. This is particularly relevant as the number of our competitors are starting to face the realities of the prior purchasing and valuation decisions.
MCM collections in the third quarter were $330 million indicative of stable consumer behavior in the U.S. as market supply continues to grow in the U.S., MCM continues to expand internal collections capacity. Since the beginning of 2023 MCM has added 350 account managers to a collections operation.
Turning to our business in Europe. Cabot collections were $135 million in Q3, flat compared to recent quarters as the consumer's ability to pay remains steady in Cabot's markets. With U.K. credit card outstandings still 8% below pre-pandemic level and charge-off rates still very low, the markets in the U.K. and Continental Europe remained very competitive.
Cabot portfolio purchases in Q3 were $51 million. We continue to constrain Cabot portfolio purchases reallocating capital to the U.S. market as we believe European market pricing still does not yet fully reflect the higher cost of capital caused by higher interest rates. Cabot remains an integral part of Encore's global business strategy and its markets are amongst the most meaningful debt purchasing markets in the world.
But as we have said in the past, ultimately, pricing will need to align with higher funding costs before we allocate additional capital towards growing our deployments in Europe. We continue to prudently manage the Cabot cost structure given the reduced level of portfolio purchases in recent quarters.
The second pillar of our strategy focuses on enhancing our competitive advantages. We have built a business around certain key competencies that allow us to deliver differentiated returns and earnings as well as generate significant cash flow. Our disciplined purchasing and superior collections effectiveness enable us to purchase portfolios at strong purchase price multiples.
Then over time, our continuous collection improvement efforts have enabled us to collect substantially more from both current and historical portfolio vintages. This in turn raises a current multiple for each vintage even higher and helps drive our differentiated returns. As a result of this diligent focus on returns, MCM's 2.4 multiple for Q3 purchases has raised the purchase multiple for U.S. portfolios purchased on a year-to-date basis to 2.3.
We look forward to another strong quarter in Q4 and also see a robust supply pipeline in the U.S. for 2024. As the market supply remains innovated in the U.S. and the pricing environment continues to improve, MCM's ERC is steadily growing.
Importantly, as the pricing continues to improve, we expect to collect more for every dollar of capital deployed. The significant amount of ERC we are adding each quarter reflects the efficiency of our capital deployment during this portion of the credit cycle. Our portfolio purchasing in the third quarter clearly illustrates this point.
MCM's deployment in Q3 was 1.5% higher than in the third quarter a year ago. Yet we added 20% more ERC from these more recent purchases at higher multiples. This is the portion of the cycle we've been anticipating. Our MCM business is in full stride purchasing portfolios at strong returns, which adds future cash flows and profitability to the business.
We believe that our ability to generate significant cash provides us an important competitive advantage, which is also a key component of the second pillar of our strategy. In the U.S. from 2020 through the first half of 2022, lower consumer spending, credit card balances and charge-off rates drove reduced market supply in our industry and also led to higher connections for our business.
When consumer behavior began to normalize and incremental cash generation from these higher collections began to subside, our cash generation came under pressure as the prolonged period of lower portfolio purchases that led to reduced overall collections.
More recently, however, higher portfolio purchases and improving pricing over the past few quarters has reversed this trend, enabling our cash generation to begin to grow again. This is a trend we expect will continue.
I'd now like to hand the call over to John for a more detailed look at our financial results and to provide an update on the third pillar of our strategy, balance sheet strength.
Thank you, Ashish. The third quarter was another period of strong purchasing for our U.S. business at attractive returns, while our collections performance remained stable in each of our key markets.
Collections were in line with expectations for the quarter, and we had small adjustments to our ERC, which impacted earnings in a negative way. I'd like to highlight a few items and provide more detail. Interest expense in Q3 of $51 million which was sequentially flat, has grown since last year, primarily due to last year's increase in interest rates and higher debt balance related to our increased portfolio purchasing.
Q3 collections of $465 million resulted in $4 million of recoveries below forecast, thus reducing Q3 EPS by $0.16. I changes in expected future recoveries totaling $13 million, reduced Q3 EPS by $0.44. Together, changes in recoveries reduced Q3 revenues by $17 million and reduced Q3 earnings by $0.60.
ERC at the end of the quarter was up 8% compared to a year ago. It bears repeating that CECL accounting can cause significant fluctuations in quarterly reported results, but they do converge with cash results over the long term. This is yet another reason that we believe it's important to take the long view of our financial metrics.
This is consistent with the way we run the business and make decisions, employing a long-term perspective to building shareholder value. Breaking our global collection results down into our 2 major businesses, MCM collections in the U.S. grew 1% compared to Q3 last year. Cabot collections in the third quarter grew 2%.
For both MCM and Cabot collections in Q3 were in line with expectations. For portfolios owned at the end of 2022, and Encore's global collections performance year-to-date through the third quarter was 97% of our year-end portfolio ERC.
For MCM and for Cabot, collections through Q3 by the same measure were 97% and 98%, respectively. All 3 of these figures through the third quarter were identical to our first half performance. The third pillar of our strategy ensures that strength of our balance sheet is a constant priority. When compared to the pre-pandemic years, Encore has become a much stronger company. We now have a unified global funding structure that provides us with financial flexibility, diversified sources of financing and extended maturities.
Over the past several years, our strong operating performance and focused capital deployment, drove higher levels of cash generation and contributed to a lower level of debt, which reduced our leverage significantly. More recently, our leverage has risen driven by lower collections and increased portfolio purchasing during each of the last 4 quarters.
But now as collections environment has stabilized, we are seeing our leverage level off as we expected it would. With our strong balance sheet, we remain well positioned to fund the portfolio purchasing opportunities that lie ahead. With interest rates and with higher interest rates and continued challenging conditions in the bond markets, the importance of our global funding structure cannot be overstated.
We believe our balance sheet provides us very competitive funding costs when compared to our peers and competitors. Our funding structure also provides us financial flexibility and diversified funding sources to compete effectively in this growing supply environment. In October, we made good use of this flexibility by adding $175 million of incremental liquidity to our balance sheet as we prepare for the robust supply pipeline we see in the U.S. in 2024.
To achieve this, we entered into a $175 million facility secured by U.S. receivable portfolios. We also extended the maturity of the Cabot securitization facility to September 2028 and reduced its size by GBP 95 million to GBP 255 million.
In addition, we issued an incremental EUR 100 million of our 2028 floating rate notes as a follow-on tap of our December 2020 offering.
With that, I'd like to turn it back over to Ashish.
Before I close, I'd like to remind everyone of our commitment to a consistent set of financial priorities that we established long ago. The importance of a strong diversified balance sheet in our industry cannot be overstated, especially as the highly anticipated growth in market supply has arrived in the U.S.
We will continue to be good stewards of your capital by always taking the long view and prioritizing portfolio purchases at attractive returns in order to build long-term shareholder value. I'd also like to summarize the competitive advantages, especially during a time when a number of our competitors are dealing with their own challenges.
These advantages differentiate our business in the industry and long-term financial results are the evidence. First, we are the largest player in the U.S. tech purchasing market, which is -- also happens to be the world's largest market with the highest returns.
Second, we believe our ability to collect on the portfolios we buy and a corresponding purchase price multiples are best-in-class. We collect more over a vintages lifetime, which in turn generates more cash more earnings and ultimately higher returns.
Third, our well-diversified global balance sheet allows us to allocate capital to opportunities with the highest returns. This flexibility is vital as demonstrated by a reallocation of capital from our Cabot business in Europe to our MCM business in the U.S. in order to maximize overall returns.
Our balance sheet also provides us the flexibility to fund our business in a myriad of ways. This provides a significant advantage in times when traditional markets become less certain and more expensive. And finally, our $8 billion of ERC has been built using a consistent, disciplined purchasing approach and represents an enormous capability to generate cash.
We believe these competitive advantages supported by a mission, vision and values, truly differentiate Encore's standing in the debt purchasing industry. As the credit cycle continues to turn, we are committed to the essential role we play in the credit ecosystem. Through the great work our colleagues around the world are doing to help an increasing number of consumers restore their financial health.
In closing, as a result of the continued disciplined execution of our strategy, we believe Encore is the best positioned company in our sector. We have the operational capability and balance sheet to capitalize on the substantial and growing portfolio purchasing opportunity in the U.S. market. Looking ahead, we expect 2023 will be a record year of capital deployment in the U.S. for our MCM business at strong returns.
We see a robust supply pipeline in the U.S. for 2024 with even better returns. We plan to remain disciplined in the highly competitive and valuable European market and will only allocate significantly more capital when the returns become more attractive, which we expect will happen over time and we expect steady growth in ERC and earnings.
Now we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions.
[Operator Instructions] Our first question comes from the line of Mark Hughes from Truist Securities.
Jonathan, if we think about your collections, you're at 97% of forecast -- if that stays kind of at the current level, would we perhaps anticipate more changes in expected recoveries, $17 million in this quarter is obviously a very small amount relative to your overall receivables balance in ERC. But is the portfolio, does it already reflect 97% and to another 97% would be in line or if it stays at 97%, would there be elevated risk of more adjustments?
Yes, it's a great question, Mark. But just to clear up any confusion. The 97% refers to our ERC as of the end of 2022. So the purpose of that metric is really so people understand more longer term, if you will, how close you are to hitting that ERC forecast that was created as of that date.
You need to remember, there are 2 things that impact years after that. One, you're now buying more portfolio. And so if you will, anything that you purchased during the course of 2023 is not included in that number, and in addition, as you know, every quarter, we go through a process where we evaluate and establish what our best guess is for a forecast going forward. And by definition, that's going to move quarter-on-quarter. So I understand your question. I understand where it comes from, but you shouldn't take that as an indicator of any future PCL charges.
I think it does, if I restate it, the portfolio is mark-to-market and already takes into account your expectations based on the recent history. Is that fair?
Correct. And in addition, you've added obviously, all your purchases from 2023.
And if I could add to that, Mark, this is Ashish. The 2023 purchases, as you will see later in the Q, are well exceeding our expectations. So -- some of the negative charges were around '21, '22 in order vintages, but '23 is exceeding those.
I mean those circumstances, looking at some of these charge-off numbers and seeing doubling or so across certain issuers -- why haven't you bought more paper? Is -- any change in behavior of the banks in terms of selling? Is this a natural lag, you being more selective? I wonder if you could just comment on that dynamic?
Yes, so we are buying more. As I indicated, Mark, we are buying a record amounts for MCM, over $200 million for 2 quarters, and this 1 is closed. And what matters is not what just you spend, but how much ERC you add.
So the face amount, if you look at the chart of U.S. lending in charge-offs, pre-pandemic, post-pandemic actually, if you multiply the 2, it will look pretty close. But the deployment opportunity is higher because some of the banks who are selling their charge-off rates are increasing at an even higher rate.
And then we are spending the same amount of money or actually more, and we're getting even more for that same spend. So we are adding ERC at a very record rate as we've shown on that 1 slide in our presentation.
Appreciate that. And then the 2022 vintage, you show in your slide deck that it is a little bit below initial expectations. How have you seen that performing here lately. If you look at the last quarter, I guess we'll see in the Q. But how are you feeling about that vintage?
It's performing fine at this point. I mean what the reflection of that multiple changes, as we indicated, I think, in a call or 2 prior that as the valuations, when we were buying '21 and '22, we were coming off of a high collection period for the pandemic and valuations take time to adjust.
Pricing really hasn't improved. So that was more of a driver. And as that has been adjusted over the past several quarters, it's performing very consistently and no major changes. There's nothing particularly unique about it in that sense, in terms of the paper we bought. It's just performance expectations is the big driver of those slight movements in the total multiple of ERC. It's maybe in like 2020, 2021 vintage actually.
Our next question comes from the line of John Rowan from Janney Montgomery Scott.
So I guess just trying to understand the MCM purchases took a dip in the quarter relative to the prior 2 quarters and then relative to the guidance that you gave for the fourth quarter. Why is it apparently just a little bit weaker in the third quarter.
I wouldn't call it weak. It's just a reflection of what portfolios come to market, some of the flows, they may increase or decrease in sizes. It's just a normal volatility you might expect quarter-over-quarter. There's nothing special about it in terms of why is it 179 versus 230 in the prior 2 quarters.
So we are buying at very good rate and being -- also being selective so that pricing reflects what it should, given higher cost of capital and kind of what the market supply-demand dynamics are. So we are staying disciplined and making sure the pricing direction we're able to fully capitalize on that, if you would.
So it just can ebb and flow a little bit. But if you look at cumulative year, given our expectation of 200, it is going to exceed the last record quarter by a huge margin, which was in 2019.
Okay. I was a little surprised to see the negative revision just given the comments that you made back in August about -- or after the note deal, that the portfolio is performing in line with kind of the marks when you look at December '22 relative to the first half of the year through August, it was consistent with the first half of the year. So I would assume at that point, there probably wasn't a negative revision through at least 2 months of the year. Was September notably weaker than the other 2 months?
That's not the case, John. So let me explain a few things here, right? The first is September was no different than another 2 months. It's just whatever normal seasonality and performance is. That's number one.
Number two, when we said performance was in line with what we have said previously, it's a 97% number that John talked about, that 97% at the end of Q2 was against the December 2022 ERC. And we said, Q3, we are seeing the same 97% for the 2 months. And at the end of Q3, which includes September, we're still have that 97% in our script on presentation.
Now -- you mentioned the revisions. So if you noticed in our Q, the performance above or below recoveries is just $4 million number. If you put that in context, that's less than 1% or barely 1% impact in terms of the forecast. So -- that's very close to expectations and better than the 97%, which it was because the forecast has changed, but also the '23 vintage that's overperforming. So those 2 factors that John talked about.
So $4 million is just less than 1%. And the other 1 is changes in ERC. Some of it is actually timing. As timing changes and we forecast every vintage, the change is way less than 1% on that ARC as well. But if the small changes that can cause quarterly variations. So that's why 1 have to look at it over the long term. If you start back in '21 -- in 2022, Q1, we've had significant upward revisions and then some downwards. So over time, it adds up. And as John has said and we have said accounting will equal cash over the full life of the vintage.
Our next question comes from the line of Mike Grondahl from Northland.
Could you give us any color into sort of the impairments? Would you say that's more macro inflation driven sort of I'm trying to understand the why student loan driven maybe? And then secondly, what years were most affecting negatively?
Yes, Mike. So -- as I just mentioned in the response to the previous question, the performance of collections under forecast was less than 1%. And it was -- if you look at any forecast, that's a pretty good outcome to attribute that to any 1 variable, that would not be possible or the right thing to do.
Now we -- given your student loan comment, we've actually gone and looked given the changes that have just come about. We track every call. We've looked at speech data. When they found the consumers really not impacted by student loan payments, at least in our consumer base.
We found much less than 1% of consumers even mentioned student loan repayment as part of a long conversation with the account manager. So it's minuscule and immaterial from that point of view. Again, I just want to call out the impairment you mentioned that's a $4 million collections under forecast, and it's a very small percent of the total ERC or the book value.
Got it. And the second question was just sort of what years were most affected. It sounds like '21 and '22 are where your biggest headaches are. Can you verify that? And then just sort of -- how do you determine that the impairment is enough? I mean, why shouldn't it be more?
Yes. That's a good question. Sorry, I didn't address Mike. So actually in our Q by vintage will be disclosed the changes in recovery. Now I recognize that's a combination of actual performance plus any change in the forecast of the timing.
So the biggest numbers were 2021 and then would be '22 and 2019, which actually had a overperformed in the past and the positive was 2023. Again, I'm talking U.S. vintages. And Cabot's European vintages, they are across spread across, and there are some positives and some negatives. So to your other question, we always have the best estimate prepared for every quarter. And then we look at past data and put our process, that's heavily audited and whatnot to make any revisions to the forecast every quarter.
So at this point, in our best estimate, we've incorporated everything that's out there. Now if you add cumulatively take the 9-month view, some of those vintages have taken some of those hits over the quarters, but 2023 vintage has continued to outperform the initial expectations as well. So there's some puts and there takes.
Got it. And I mean this is the fourth quarter in a row that I think sadly, we're spending too much time talking about impairments and maybe not enough time talking about the robust purchases or the purchase pipeline. . But because it's been 4 quarters in a row, do you guys, I don't know, get any latitude to maybe increase the provision just so we're not dealing with this or continually dealing with it?
No, it does not work that way. John can chime in as well. But -- and again, for the 4 quarters, the 3 quarters have been very small. And I wouldn't call the word impairment. This is per your forecast and then you have performance or under and then you have a change in forecast, right?
So I would also remind Q1 2022, Q2 2022 for U.S. We had very, very large increases in future expected recoveries of $125 million in Q1, and I'm going by memory, maybe $60 million in MCM for Q2. So Again, if you take a longer view, there are some puts and takes, and I agree with you, these are just small variations to talk about as much time.
The thing that we're most excited about, as you mentioned, is the strong purchasing MCM is doing, the capital allocation we can do from Europe to U.S. and the multiples we are seeing and the ERC we are building up for future collections, revenues and therefore earnings.
If I can just chime in. I just want to -- Mike, I just want to make sure you understand -- and I want anybody on the call to think that this is anything other than a very, very rigorous process that we go through in order to determine what our forecast is.
It is highly audited because it's so impactful to the P&L. And so we have a very, very strict process, very structured process. of how we go about it. And then to the extent that you have a model that generates something and you have to have some kind of overlay or adjustment that has to be defended as to why it makes sense to do that.
And we are -- the important thing to remember, I know Ashish mentioned this, but this isn't an impairment. This is just an adjustment because impairment when 1 takes an impairment from an accounting perspective, that's a permanent thing. This is not permanent. We don't know what the future will hold. All we know is what the models tell us, and we make the adjustments as we need them, right?
Yes. Fair enough, impairment might be a strong word, but it's still kind of a write-down to some extent on the pool. Hopefully, we don't have to talk about these next quarter.
Our next question comes from the line of Robert Dodd of Raymond James.
A couple of questions. On the adjustment. And to your point, this, I mean, the 2023 is, I can say, it's a $6.9 million upward over the 9 months this year. This time last year, though the 2022s were getting written up as well, if I remember right.
So can you -- and I know to Jonathan's point, it's continue our best efforts to get the curb side. But how confident are you that the behavior you saw in the '22s from early outperformance to where we are today, where there's a little bit of underperformance, it seems. How confident are you that, that type of behavior isn't going to occur with the '23s.
Robert. So 1 thing I would just correct or add to your you pointed out $6.9 million. That's just for the 3 months. And actually, for the 2023 9 months, it is $16.7 million overall revision. So I just wanted to kind of correct that.
Now -- in terms of payment behavior, let me just step back from all these minor adjustments on each vintages forecast because we do our best possible estimate for each. We are seeing a very stable payment U.S. consumer payment behavior. As we've said in the past, we are -- our valuation models in 2021 and 2022 were adapting to changes from the pandemic levels of high collections.
It takes some time. There's a lag at times the valuation models were adjusting and they have adjusted because '23 overperforming. But that said, every vintage, we look at it at a very granular level in the forecast and are confident in that forecast as we sit today, and then we look at it again in 3 months.
So that's how that process works. But overall, the consumer behavior is very stable, unlike what some competitors out there may be saying or what not, we found post-pandemic, consumers have a little bit less cash to making smaller down payments, but setting up payment plans. And we just looked at our data again, our data is consistently showing payment plans are holding up really steady, very well in the U.S. market in the U.S. business.
So we feel very good with the underlying operational metrics. We are adding staff for additional purchasing that we're doing. We added 350 account managers for the year. So there's nothing concerning from either big macro point of view or operational capability point of view. These are forecasting changes that happen on a winter by vintage basis.
And you do your best to adapt and estimate for each vintage and the net effect of those, and you can see that in our Q, some vintages are positive, some are negative, globally, right? So that's what happens from a forecasting and the implications on accounting point of view.
I appreciate that -- actually -- and the staffing with the next question. To your point, you add 250 account managers. Are we going to see or potentially see a deterioration -- near-term deterioration efficiency, if you -- are you planning on staffing up for the increased volume that is coming, right, that you've got to hit a record in the U.S. this year already and 2024 looks good.
Are you planning on staffing up kind of ahead of that? Or do you think it could be managed -- so the staffing grows and cash collection efficiency or return on invested capital, whatever it doesn't take a near-term ding from timing this metrics on staffing versus collections?
Yes. So this is not a onetime sudden hiring and sudden closing of call centers and whatnot. We've been adding staff for the last 6 months in a very steady fashion in our U.S. business. Doing it across U.S., Costa Rica, India, and therefore, we are able to train them, and it's on a large base of account managers already.
So it's not like -- this increase will impact our efficiency much. It's a very steady, measured way to add capacity, and we continue to do that. And we plan to continue doing that for the rest of the year for sure as we plan for increased purchasing. So we're very confident operationally how these will perform and have baked in that into our expectations, again, back to the forecast of the best possible ability that we can.
Our next question comes from the line of Mark Hughes from Truist Securities.
Jonathan, did you give the U.K. purchase multiple or the cat purchase multiple?
That purchase multiple for Cabot for the -- you're talking about for Q3?
Yes. I think you usually give about 9 months, but if you go Q3, that's good, too.
Q3 is $1.75 billion.
Okay. What's your judgment about what's going on in the U.K. market or in Europe. We've been talking about irrational competitors for quite a while. And it seems like I have come under some pressure from a balance sheet perspective, but hadn't really contributed any kind of improvement in the market. Why are they -- why is there irrational behavior so durable?
Yes. It's a good question, Mark, and we discussed that a lot, as you can imagine, internally. Now I would say we've seen some change in behavior, certain things, outcomes of certain actions that would have been different 6 months ago now banks are taking it back to an auction.
People can renew for example. So we're seeing early signs of change behavior, especially in the U.K. But it's -- at this point, given the number of players in the supply that's not grown because lending has not grown, it's still below pandemic and charge-offs are still at record low. So the supply factor has not contributed. We're still seeing a competitive behavior that's still pretty high competitive intensity.
So it's -- we've seen some early signs, not enough to change pricing and our allocation of capital, particularly given we can move capital around and given our balance sheet structure and the opportunity we see in the U.S. So it's something we staying very focused on and watching and staying disciplined in buying portfolios at acceptable returns so that we are still buying, but we don't need to buy any more than we need to.
And if you constrain the purchasing, you can get acceptable returns because there are niche segments and sellers and relationships and capabilities that kind of match up pretty well where we can buy what we want at our returns.
And then, Jonathan, with the capital raise, assuming the debt stays where it is currently, let's call it, what would the quarterly interest rate run rate look like?
Well, if you look for our weighted average cost of debt for the -- as of the end of the quarter, it was about 5.7%. So this wouldn't -- quite frankly, it would move it up a very little bit, but it wouldn't move it materially is my expectation.
Our next question comes from John Rowan of Janney Montgomery Scott.
John, I just had 2 quick housekeeping items. Did you say that the revision was $0.60 to earnings? I didn't quite hear it. I think you gave a $0.44 and a $0.13 number and then $0.60. I just want to confirm that.
Yes, the total or changes was $0.60. Yes, $0.44 plus $0.60.
I thought I heard $0.13 so I was confused. And then what was the $5 million in other income and the reason why the tax rate was so high for the quarter?
Yes, actually, they're all kind of related. So as you know, we've been reducing portfolio purchasing in the current environment in the U.K. and Europe. And so we -- as I walk through, we reduced the size of our Cabot securitization facility.
And accordingly, in anticipation of that, we reduced an associated hedge and interest rate cap, and that produced a gain of roughly $3.5 million. So that explains, I think, how come the other income was higher than normal. And in terms of tax rate, tax rate was higher as a result of a valuation allowance that was related to our European business. And so that's how bit was higher this quarter.
Maybe will go -- I assume it will move down to the mid-20s next quarter, correct?
I think actually, it will move down, but I would expect for the year, we're going to have something -- we're going to have something more in the high 20s, low 30s because as you know, where your tax rate lands is driven by where you earn your income. So as it moves around, your tax rate is going to move up and down. So my current expectation would be high 20s, 30s, actually.
For the year though, not for next quarter.
For the year, correct. .
This concludes the question-and-answer session. I would now like to turn it back to Mr. Masih for closing remarks.
As we close the call, I'd like to reiterate a few important points -- we believe Encore is truly differentiated in our sector with a solid track record of results and superior capabilities. As the consumer credit cycle continues to turn, the U.S. market is seeing the world's strongest supply growth.
We continue to apply a disciplined portfolio purchasing approach by allocating record amounts of capital to the U.S. market, which has the highest returns. When combined with our effective collections operation, we believe this approach will enable us to continue to grow our cash generation. This is a portion of the credit cycle we've been waiting for.
Thanks for taking the time to join us, and we look forward to providing our fourth quarter and full year 2023 results in February.
Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.