Credit-Card Delinquencies Fell For Large Issuers In February

Late credit-card payments fell in February for several large banks as consumers continued to pay off bills they built up during the holiday shopping season.

Delinquencies were down for Capital One Financial Corp. (COF), Discover Financial Services (DFS), Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C). American Express Co. (AXP), the largest credit-card issuer by spending, said its delinquency rate was flat for the second-straight month at 1.4%, the lowest of the six biggest card lenders.

Credit-card performance has surged over the last two years as many customers abstained from amassing large balances following the recession and instead focused on paying off their loans. That trend has helped large banks cut their bad-debt expenses, but also has made it difficult to increase revenue, which they largely derive from charging interest on loan balances and various account fees.

Net charge-offs, or loans lenders deem uncollectible, also fell for several card issuers last month. But net charge-off rates increased for American Express, Discover and Citi.

American Express's net charge-off rate rose to 2.4% from 2.2% in January. The rate is still down from 3.8% a year earlier and significantly lower than a few years ago, when the rate surpassed 10%.

Discover's net charge-off rate rose to 2.8% from 2.75% in January but is still near a historic low.

Citi's net charge-off rate increased to 5.36% from 5.27% in January.

Bank executives have said delinquencies and charge-offs are likely to pick up this year as the industry pursues growth, though analysts expect performance to continue to be strong going forward. Banks' efforts to acquire new customers and boost overall loan balances have become more important as the financial benefits banks have enjoyed from cutting reserves for bad loans wane.

"The chapter is closing on reserve releases," Gordon Smith, the head of J.P. Morgan's credit-card business, said last month at the bank's investor day.

Many banks ramped up marketing last year in an effort to steal market share, though in recent months they have taken a breather. For example, the volume of credit-card offers sent to customers fell in January to 266.3 million, an 18% decline from December and a 30% decline from a year earlier, according to Mintel Comperemedia, a market-research firm. It was the third-straight month of a decrease in mailings.

"We are going to have to wait and see whether" credit-card issuers are "sort of taking stock and are going to" resume mailings again or if it is the "beginning of an ongoing trend," said Andrew Davidson, senior vice president with Mintel Comperemedia.

The decline could be due to issuers feeling they "don't have to mail so much to try to seek out these customers" as consumer debt levels rise, Davidson said.

While delinquency rates have fallen for card lenders, credit-card expert Odysseas Papadimitriou said there is still cause for concern. When combining the amounts of new-card debt borrowers built up last year with the amount of bad loans that issuers charged off, the net result suggests consumers are leveraging up at a troubling pace, said Papadimitriou, chief executive of CardHub.com, a credit-card comparison website.

By CardHub.com's calculation, consumer credit-card debt rose by $47.8 billion in 2011 when including charged-off loans. That compares with an increase of $9.1 billion in 2010 and a decrease of $10 billion in 2009.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; andrew.r.johnson@dowjones.com

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