UPDATE: Loan Write-Offs Edge Up For Some Card Issuers But Outlook Remains Strong
17 April 2012 - 8:27AM
Dow Jones News
American Express Co. (AXP), Bank of America Corp. (BAC) and
other large credit-card lenders saw their borrowers' payment habits
improve again in March, though loan write-offs edged up for some
issuers.
Delinquencies, or the percentage of borrowers late on their loan
payments, continue to drop for the country's largest issuers of
plastic, despite expectations that credit performance will turn
lower this year as some lenders relax their requirements in pursuit
of loan-balance growth.
"March proved to be a good month for the credit card issuers,"
Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods, wrote
in a research note Monday. The continued decline in delinquencies
"should potentially be a positive for future charge-off rates."
The ongoing improvements are likely to embolden some lenders
already contemplating loosening their underwriting standards, which
tightened dramatically when the recession hit as a wave of borrower
defaults caused expenses to surge.
Moody's Investors Service said last week that "credit tightening
has ended," though "lending standards for new originations still
remain relatively high."
American Express, the largest credit-card issuer by spending,
reported in a filing with the Securities and Exchange Commission
Monday its delinquency rate for U.S. card loans fell to 1.3% in
March from 1.4% in February. Its net charge-off rate, or percentage
of loans deemed uncollectible, was flat at 2.4%.
With the March figures, American Express has now reported a
quarter's worth of data for the year. Based on preliminary figures,
the company's delinquency rate for the first quarter is 1.3%, down
from 1.8% a year earlier. Its quarterly net charge-off rate is
2.3%, down from 3.7% a year earlier.
American Express is scheduled to report first-quarter results
after the market close Wednesday.
Bank of America also saw its March performance improve. The
Charlotte, N.C., bank, which reported monthly figures for
securitized loans and not its overall card portfolio, said its
delinquency rate fell to 3.6% from 3.75% in February. Its net
charge-off rate also fell, to 5.48% from 5.56%.
Citigroup Inc. (C) reported declines in both metrics Monday for
the first quarter, while Discover Financial Services (DFS), which
reported March results last week, saw both numbers drop for the
month.
But Capital One Financial Corp. (COF) and J.P. Morgan Chase
& Co. (JPM) saw net charge-offs edge up slightly.
Capital One said its net charge-off rate was 3.85% in March, up
from 3.84% in February. Delinquencies were down to 3.25% from
3.62%. Some analysts have voiced concerns about the McLean, Va.,
lender's prospects this year in light of its recent acquisition of
HSBC Holdings PLC's (HBC) U.S. credit-card business, which includes
subprime and several store-card portfolios, which tend to perform
worse than general-purpose credit cards.
Moody's said it expects Capital One, which reports quarterly
results after the market close Thursday, to be the "worst
performer" of the six largest credit-card issuers this year when it
comes to charge-offs, due mainly to its HSBC acquisition. It
expects Capital One's net charge-off rate will average about 5.7%
this year.
J.P. Morgan Chase on Friday reported first-quarter results
showing its net charge-off rate increased to 4.4% from 4.29% in the
fourth quarter but down from 6.97% a year earlier. Its quarterly
delinquency rate for credit cards fell to 2.56% from 2.81% in the
fourth quarter and 3.57% a year earlier.
Executives for the New York bank, which has been targeting
affluent customers with new card products, have said they expect
some of the benefits they have enjoyed from releasing funding
reserves set aside to cover bad loans to dissipate this year.
Reserve releases have bolstered the earnings of credit-card
lenders over the past year. But if those disappear, lenders will
have to look for places to cut expenses to maintain earnings
performance.
Some credit-card issuers have pulled back on direct-mail
marketing in recent months, according to Mintel Comperemedia, a
market research firm.
Card lenders mailed 282 million offers to U.S. consumers in
February, up 6% from January but down 25% from a year earlier.
"Some issuers are cooling off following a sustained period of
aggressive growth," Andrew Davidson, senior vice president with
Mintel, said in an email.
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214;
andrew.r.johnson@dowjones.com
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