By Andrew R. Johnson
The six largest credit-card issuers posted improvements in their
delinquency rates in December, potentially signaling consumers grew
more conservative in the weeks leading up to the political showdown
over the so-called fiscal cliff.
Lenders including American Express Co. (AXP), Discover Financial
Services (DFS) and Capital One Financial Corp. (COF) have benefited
in recent years from their customers' diligence at paying their
bills on time following steep losses during the financial
crisis.
While analysts expect the quality of the card companies'
portfolios to deteriorate slightly this year as they push to book
new customers, by and large delinquency rates remain near historic
lows for many in the industry.
Capital One, whose delinquency rates had been rising in recent
months partly due to accounting moves tied to its acquisition of
HSBC Holdings PLC's (HBC) U.S. credit card business last year, said
its delinquency rate fell to 3.61% in December from 3.71% in
November.
American Express, which primarily lends to affluent customers
and last week announced plans to cut 5,400 jobs mainly in its
travel-services business, said its delinquency rate stayed flat at
1.2%, the lowest rate among the six largest card issuers.
The debate over the fiscal cliff--a set of tax increases and
government spending cuts that were to take effect at the start of
the year--was of particular concern to American Express investors
given its wealthier base. While Congress reached a deal to avert
some tax hikes, others targeting higher earners weren't spared,
causing concern that spending by American Express' customers could
be compressed this year, a factor cited by some analysts who
downgraded their ratings on the company's stock this week.
Discover said the delinquency rate of credit-card loans packaged
into securities fell to 1.75% from 1.84%. The Riverwoods, Ill.
lender in recent weeks has been aggressively marketing a new credit
card called Discover "it" that doesn't charge a borrower a late fee
the first time they pay late or apply so-called penalty rates any
time a customer falls behind on their payments.
The three other major credit-card issuers--Bank of America Corp.
(BAC), J.P. Morgan Chase & Co. (JPM) and Citigroup Inc.
(C)--also reported declines in their delinquency rates in
December.
Despite the declines in delinquency rates, some lenders posted
increases in their net charge-off rates, which measure loans
issuers write off after borrowers become severely delinquent.
American Express, Bank of America and J.P. Morgan all saw
declines in monthly figures reported Tuesday.
American Express said its net charge-off rate was 2.1%, up from
2% in November. Bank of America's rate increased to 4.65% from
4.01%, and J.P. Morgan's rate increased to 3.54% from 3.31%.
The driver of the increases for some banks was the aftermath of
Hurricane Sandy, which hit the East Cost in late October, Donald
Fandetti, an analyst with Citigroup, wrote in a research note on
Tuesday.
On Tuesday, S&P Dow Jones Indices and credit bureau Experian
released a joint report showing the national default rate increased
to 1.72% in December from 1.64% in November. The rate measures
mortgage, auto loan and credit-card charge-offs.
The credit card default rate fell to a post-recession low of
3.53% in December, down from 3.58% in November.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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