Data released Thursday by major U.S. credit-card issuers
reinforce the challenges facing lenders.
The latest numbers indicate that consumers continue to struggle
amid high joblessness, as delinquency rates, a key gauge of future
losses, continue to rise for most card issuers, and losses stemming
from souring card loans remain elevated.
The data suggest the U.S. is unlikely to experience a smooth
economic turnaround. Moreover, seasonal trends pose additional
risks: Strapped consumers, heading into the holiday season, may
increase spending on their plastic, which could lead them to fall
even further behind on payments.
"The companies aren't out of the woods yet," says Scott
Valentin, an analyst at FBR Capital Markets, "but they are now
better able to forecast credit trends, which are more in line with
seasonal trends."
The monthly report cards on the performance of credit-card
loans, including those packaged into bonds, come amid heightened
scrutiny of credit as investors, analysts and company executives
sift through the numbers for signs of an economic recovery.
Issuers of plastic, including Capital One Financial Corp. (COF),
JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC),
Citigroup Inc. (C), Discover Financial Services Inc. (DFS) and
American Express Co. (AXP) are also coping with sweeping
legislation restricting certain fees and rate hikes that will bite
into income.
To fight the losses, card issuers are scaling back on credit and
getting tougher about lending standards; whittling down the size of
their credit-card loans book can also magnify the extent of credit
deterioration, as losses are spread over a smaller portfolio.
Card issuer-turned-bank Capital One said charge-offs - card
loans deemed uncollectible - increased to 9.77% in September from
9.32% in August in its U.S. credit-card business. Cardholders at
least 30 days behind payments rose to 5.38% last month from 5.09%
in August.
The charge-off rate reported by Capital One and its peers is
annualized. The delinquency rate, a key gauge of future losses, is
important because higher delinquencies force issuers to squirrel
away capital to reserve for potential losses; ultimately, companies
must write off loans if customers can't pay up.
Discover said the 30-day delinquency rate on credit-card loans
that have been packaged into bonds rose to 5.57% in September, up
from 5.35% in August. But, at 8.69%, it wrote off less in card
loans last month, compared with 9.16% in August.
Discover and its bigger rival, American Express, both issue
cards and process transactions.
Breaking from the pack, AmEx continued its streak of reporting
relatively healthier credit trends. The company said U.S. borrowers
at least a month behind their card payments stood at 4.1% in
September, unchanged from August. For the quarter ended Sept. 30,
the 30-day delinquency rate was 4.1%, according to preliminary
data, down from 4.4% in the second quarter.
AmEx wrote off 8.4% of its U.S. card loans, including those
packaged into bonds, last month. In August, the company wrote off
9% of its card loans. For the third quarter, the company wrote off
8.9% of its U.S. card loans, according to preliminary data, down
from 10% in the second quarter. AmEx offers charge cards requiring
a monthly payoff and credit cards on which customers can carry a
balance.
Bank of America, at 14.25%, had the highest write-off rate in
September among the card issuers that released data Thursday. In
August, the card issuer wrote off 14.54% of card loans, also the
highest rate at the time among its peers.
Citigroup wrote off 10.15% of card loans in September (its
numbers are as of Sept. 25), down from 12.14% in August. For the
two months, Citigroup had the second-highest write-off rate, behind
Bank of America.
Chase, a unit of JPMorgan Chase, said its credit-card charge-off
rate fell to 8.12% last month, from 8.73% in August.
"Card is having a tough time," Chief Executive Jamie Dimon said
of JPMorgan's credit-card business during a conference call
Wednesday with investors to discuss the company's third-quarter
results.
Officials at these companies were either unavailable for comment
or declined to comment.
Shares of American Express ended 1.28% higher at $35.54. Shares
of Capital One closed off 3.13%, and Discover stock ended down
0.98%. Bank of America shares finished down 2.64%, and JPMorgan
Chase closed flat at $47.16. Citigroup shares lost 5%.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com
(Tess Stynes in New York contributed to this article.)