DFS Discover Financial Services

A decline in delinquency rates for most issuers of plastic failed to staunch disappointment over the continued slow pace of recovery in the U.S. credit card industry.

Monthly data released Friday by major credit-card issuers indicated losses from souring loans remain high, while delinquencies, a key gauge of future losses, declined, but at a slow pace. The loan write-offs come as seasonal factors--such as good behavior on the part of borrowers fueled by tax refund checks--are behind the card industry.

Investors are keen to see issuers increase lending; the more that cardholders charge on their plastic, the more the companies earn by way of fees, so the amount customers spend is critical. Card-loan balances--and, as a result, revenue--have been falling as companies, stung by hefty losses during the economic slump, scaled back on credit and toughened lending standards. According to the Federal Reserve, revolving credit lines--mainly card balances--reduced by $5 billion in August from July, or at an annualized rate of 7.2%. Since the end of 2008, these balances have fallen by about $135.3 billion to $822.2 billion.

Shares of Capital One Financial Corp. (COF), a card-lender-turned-bank, ended Friday down 7.60% at $36.86, as charge-offs in its U.S. credit-card business rose to an annualized 8.38% in September from 8.19% in August. But the 30-day delinquency rate continued to fall, totaling 4.53% last month from 4.56% in August.

Charge-offs are loans that a card issuer deems uncollectible because borrowers can't repay them; they are based on past delinquent balances. Delinquencies are loans that may be written off in the future. The delinquency rate is important because higher delinquencies force issuers to squirrel away capital to cover potential losses.

Also pressuring share prices Friday: Continuing concern on the impact of improper foreclosure documentation methods on financial firms including J.P. Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC), who are big U.S. mortgage lenders in addition to being major credit-card issuers.

At American Express Co. (AXP), which has an affluent cardholder base, borrowers at least a month behind in their card payments rose to 2.5% in September from 2.4% in August. The uptick reversed several months of falling delinquencies at the credit-card issuer. AmEx also said Friday 30-day delinquency rates fell to 2.5% in the third quarter, according to preliminary data, from 2.7% in the second quarter. AmEx wrote off an annualized 5.2% of its U.S. card loans in the third quarter, citing preliminary data, down from 6.2% in the second quarter. Shares closed at $39.09, down 0.89%.

Discover Financial Services (DFS) said charge-offs in September totaled 7.15% of credit-card loans that have been packaged into bonds, down from 7.98% in August. The 30-day delinquency rate fell to 4.41% last month from 4.47% in August. Its shares fell 3.17%, closing at $17.10. Discover and its bigger rival, American Express, both issue credit cards and process transactions.

J.P. Morgan Chase said charge-offs fell to 7.78% last month from 8.18% in August. During the same period, total delinquencies fell to 3.82% from 3.89%. Net revenue at J.P. Morgan, which reported third quarter results Wednesday, declined 18% from a year ago to $4.3 billion. At the same time, average card loans fell 17% from a year earlier to $140.1 billion. Its shares were down 4.05% at $37.15.

Credit-card issuing banks are also facing restrictions on debit-card transaction fees that are a part of the recent sweeping legislation overhauling financial regulation. In addition, they are dealing with new rules implemented earlier this year that curb credit-card fees and interest rate increases.

Bank of America, at 9.99%, had the highest write-off rate in September among its peers. But the write-off rate was lower than the 11.73% the preceding month. Bank of America has consistently reported a higher write-off rate than other major U.S. card issuers. Total delinquencies were also higher 5.71% last month compared with 5.68% in September. Bank of America shares closed at $11.98, down 4.92%.

Citigroup Inc. (C) wrote off 8.99% of card loans last month, compared to 11.18% in August. Its stock closed at $3.95, down 2.71%.

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

(Kevin Kingsbury contributed to this article.)

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