By Andrew R. Johnson
Loan losses increased for some of the largest credit-card
lenders last month following a previous uptick in late
payments.
The lenders' losses remain near historic lows, though, with
analysts predicting only a very modest increase in delinquency and
net charge-off rates next year barring any major shocks in the
economy.
"The portfolios at this point are pretty seasoned," said Sameer
Gokhale, an analyst with Janney Montgomery Scott who covers
credit-card lenders. "Whatever you have in your credit-card
portfolio is going to reflect a customer base that's generally
stabilized."
Capital One Financial Corp. (COF), Discover Financial Services
(DFS), American Express Co. (AXP) said in monthly filings with the
Securities and Exchange Commission on Monday that their net
charge-off rates, or the percentage of loans deemed uncollectible,
inched up in November.
Capital One has seen ongoing weakening in its portfolio in
recent months due largely to the integration of HSBC Holdings PLC's
(HBC) U.S. credit-card business, which it acquired in May and
included a large portion of store credit cards, which often
experience higher losses than general-purpose credit cards. The
McLean, Va.-based lender said its net charge-off rate for U.S.
credit cards increased to 4.46% from 4.25% in October.
Discover, which reports monthly results for securitized
credit-card loans, said its rate inched up slightly to 2.02% from
2.01%, and American Express, which has consistently experienced the
best credit quality in the industry, said its net charge-off rate
increased to 2% from 1.9%.
Capital One also said its delinquency rate, or percentage of
loans on which borrowers are at least 30 days late on a payment,
increased to 3.71% from 3.66%, while Discover said its delinquency
rate remained flat at 1.84% and American Express said its rate fell
to 1.2% from 1.3%.
The low loss rates, while a positive for lenders' income
statements, partly reflect an ongoing challenge facing the
credit-card industry: consumers' unwillingness to carry big
balances. Most credit-card lenders make the bulk of their revenue
from interest charged on revolving loan balances, and many
consumers have cut back on using their cards as a borrowing tool,
opting instead to pay their balances off each month.
Analysts don't expect that to change much next year, as the slow
economic recovery causes consumers to remain cautious about racking
up more debt. The prospect of low loan growth combined with the
potential for modest deterioration in credit quality could compound
the pressure credit-card lenders face to generate new sources of
revenue.
The fiscal cliff approaching at year end in Washington could
also hurt card issuers by sending the economy sputtering again,
causing borrowers to rein in spending.
Credit-card stocks rose Monday amid a broader rally among
financials on more positive signs that political leaders may be
able to reach a deal to avoid going over the cliff, which would
trigger government tax increases and spending cuts.
Capital One's shares closed up 2.1% at $58.01, Discover's shares
closed up 1.6% at $40.18 and American Express, whose executives
said they have contingency plans in place to deal with
repercussions of the fiscal cliff, saw its shares close up 1.1% at
$57.27.
Larger banks, including Citigroup Inc. (C), Bank of America
Corp. (BAC) and J.P. Morgan Chase & Co. (JPM), also rose higher
on Monday, with Citi leading the group by closing up 4.1% at
$39.15.
Those three banks also showed stable performance in their
securitized credit-card portfolios.
Bank of America reported declines in its delinquency and net
charge-off rates, while J.P. Morgan posted a slightly higher
delinquency rate but a lower net charge-off rate. Citi said its
delinquency rate was flat and its net charge-off rate declined.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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