Mixed Bag for NCOs & Delinquency - Analyst Blog
16 August 2011 - 10:30PM
Zacks
Regulatory filings by major credit card companies for the month
of July showed mixed results in credit card defaults and
delinquency rate. On Monday, three of the nation's top six credit
card companies reported a decline in card defaults, while four of
them recorded reduced delinquency rates.
JPMorgan Chase & Co.(JPM), Discover
Financial Services (DFS) and Capital One Financial
Corp. (COF) recorded further drop in their respective
credit card defaults, whereas Bank of America
Corporation (BAC), American Express
Company (AXP) and Citigroup Inc. (C)
reported a surge for the same.
Card companies usually write off the loans that are 180 days
past due and assume them as uncollectible. On an annualized basis,
Capital One’s net charges-off (NCOs) fell 37 basis points from the
prior month to 3.77% in July. This is the fourth consecutive month
that the company’s NCOs have stood below 5% since late 2007. The
NCOs of Capital One had climbed up to 10.87% in March 2010 before
the downward trend began.
Similarly, JPMorgan reported a decrease in NCOs to 4.78% of its
total loan balance in July compared with 4.94% in June. This is
substantially lower than the peak of 10.91% recorded in January
2010.
However, for BofA, on an annualized basis, NCOs improved to
7.43% in July as against 6.97% in June. The company’s July figure
includes the one-time impact of the transition to a more
conservative approach for recognizing losses on accounts of
customers who have died. Hence, excluding this one time change,
NCOs stood at 7.14% for the month under review. Nevertheless, this
was significantly below 14.53% recorded by the company in August
2009.
In July, delinquency rate, indicating the future rate of
default, dropped for BofA, JPMorgan, Citigroup and Discover
Financial and increased for Capital One, but it remained unchanged
for American Express.
BofA’s delinquency rate for 30 days or more (on an annualized
basis) declined for the tenth consecutive month to 4.05% as against
4.16% in June 2011. For JPMorgan, delinquency rate for 30 days or
more (on an annualized basis) inched down from 2.59% in June to
2.52% in July, marking the company’s lowest delinquency rate since
late 2007.
However, delinquency rate for 30 days or more (on an annualized
basis) for Capital One inched up to 3.37% from 3.33% in June.
However, the company’s delinquency rate for 30 days or more has
stood below 5% since May 2010.
The declining default rates are largely emanating from the
defaulting card holders' inability to get cards with large credit
limits. Moreover, banks have already written off balances of those
customers who are most likely to default. Besides, the declining
default trend is also reflective of the card owners’ improved
financial condition and ability to pay off their debts.
Currently, Discover Financial retains a Zacks #1 Rank, which
translates into a short-term ‘Strong Buy’ rating; American Express
retains a Zacks #2 Rank, which translates into a short-term ‘Buy’
rating; and JPMorgan, Capital One, Citigroup and BofA retain a
Zacks #3 Rank, which implies a short-term ‘Hold’ rating.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
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