Lower Defaults for Discover and AmEx - Analyst Blog
16 Febbraio 2012 - 1:45PM
Zacks
On Wednesday, card companies including Discover
Financial Services (DFS) and American Express
Company (AXP) reported their charge-off and delinquency
rates for the month of January 2012.
AmEx reported a decline in its charge-off rate to 2.2% of
balances on an annualized basis in January 2012 from 2.3% in
December 2011 and 3.8% of balances in January 2011. The company has
the lower charge-off rate in the card industry, primarily due to
its prosperous clientele.
Discover also reported a decline in charge-offs to $39.7 million
or 2.75% of balances on an annualized basis from 3.15% in December
2011 and 5.75% in January 2011. Besides, the company recorded a
delinquency rate of 2.31% of balances, reflecting a downside of 1
basis point (bps) sequentially and 153 bps year over year.
Meanwhile, AmEx witnessed a 1.4% delinquency rate, at par with
the prior month and down 70 bps from January 2011.
Discover’s delinquency rate reached the highest point of 5.72%
in October 2009, while the highest charge-off rate of 9.11% was
experienced in February 2010. AmEx’s record of highest charge-off
exceeded Discover’s record at 10.4% in April 2009, although its
highest delinquency was marginally better than Discover’s at 5.3%
in February 2009.
Delinquency rate is the percentage of payments delayed by 30
days or more. It is normally an indicator of future charge-offs.
Card companies usually write-off loans when they are in default for
six months from the due date.
The declining delinquency of Discover bodes well for the
company’s future as the defaults in the upcoming months are likely
to be lower. Moreover, the constantly declining defaults in both
companies indicate that the financial position of their consumers
is improving, thereby enabling them to pay off their
liabilities.
Additionally, both the companies have tightened their lending
standards and are controlling their problem accounts more
stringently. Thus, we expect the decline in both delinquency and
charge-off rates to continue in the near future.
Currently, AmEx carries a Zacks #3 Rank, which translates into a
short-term ‘Hold’ rating. However, Discover carries a Zacks #1
Rank, implying a ‘Strong Buy’ rating for the near term.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
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