DFS Discover Financial Services

Monthly data released Thursday by the major U.S. credit-card issuers hint of a turnaround in a sector hit by losses stemming from souring loans and borrowers falling behind in paying their bills.

The latest numbers on the performance of credit-card loans, from issuers including Capital One Financial Corp. (COF), Discover Financial Services (DFS), J.P. Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC), indicate that while credit losses remain at elevated levels, their pace of increase is tempering for most card issuers. Another bright spot: Delinquency rates, a key gauge of future losses, are slowing.

The next challenge for credit-card issuers likely won't be rising defaults, but the growth of their book of card loans. To fight losses from card loans, companies have been scaling back on credit and getting tougher about lending standards. Now, with the worst likely behind them, they are tasked with the balancing act of increasing lending to spur revenue but not loosening standards. In addition, the clamor for credit may be tempered by consumers who, stung by the recession, are borrowing less.

Issuers of credit cards--including Citigroup Inc. (C) and American Express Co. (AXP)--are also coping with recently enacted legislation that includes restrictions on rate increases, which will bite into income.

"We are at the inflection point," said Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods. "I think growth is going to become a focus point not only among the companies, but also with investors."

Card-issuer-turned-bank Capital One said charge-offs in its U.S. credit-card business rose to 10.87% in March from 10.19% in February, according to a filing with the U.S. Securities and Exchange Commission. But borrowers at least a month behind on their credit-card payments fell to 5.30% from 5.51% during the same period, Capital One said.

The charge-off rate reported by Capital One and its peers is annualized. In addition, this rate may be magnified because losses are spread over a smaller portfolio as card issuers have whittled down the size of their credit-card loans.

Discover said charge-offs in March totaled 8.51% of credit-card loans that have been packaged into bonds, down from 9.11% in February. The 30-day delinquency rate also fell to 5.39% from 5.50% in February. Discover and its bigger rival, American Express, both issue credit cards and process transactions.

American Express said U.S. borrowers at least a month behind their card payments declined to 3.3% in March from 3.6% in February. For the quarter ended Mar. 31, the 30-day delinquency rate was 3.3%, according to preliminary data, down from 3.7% in the fourth quarter.

AmEx wrote off 7.5% of its U.S. card loans last month, compared to 7.4% in February. For the first quarter, the company wrote off 7.2% of its card loans, according to preliminary data, down from 7.5% in the fourth quarter. The company is slated to report first-quarter results next week.

Bank of America wrote off 12.54% of its loans March, down from 13.51% in February. Total delinquencies were lower at 7.07% from 7.23% in February.

Citigroup wrote off 11.55% of card loans last month compared to 11.29% in February.

The monthly reports on the performance of credit-card loans, including those packaged into bonds, come a day after J.P. Morgan Chase posted strong first-quarter results and for the first time since the housing bubble burst expressed hope the worst is over for lenders. The banking giant also reduced its provision for credit losses and reported an improvement in "early stage" delinquencies--a sign consumers are having less trouble paying their bills. It wrote off 10.54% of card loans in the first quarter, up from 8.64% in the fourth quarter. But borrowers at least a month behind payments fell to 4.99%, from 5.52% in the fourth quarter.

Shares of Capital One closed Thursday at $45.15, down 1.98%; Discover stock was at $16.12, up 0.50%; American Express shares finished at $46.67, up 0.45%; Bank of America shares ended the day at $19.48, up 0.41%; J.P. Morgan Chase stock was at $47.81, up 0.17%; and Citigroup at $4.81, down 2.43%.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com

(Tess Stynes contributed to this article.)

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