Credit Card Industry Research

Credit Card Debt Performance Expected to Worsen

Good article covering the current state of credit quality in the credit card industry. However, the Moody's information was only updated through July of this year. Our research team has already taken a look at the August Master Trust data and as we concluded in our post (see below), the worst is yet to come....

(excerpt from www.creditcardindustry...)

The August Master Trust data continues to fuel concerns that the card industry has not yet reached the bottom of this credit crisis and given what we’re hearing, that bottom may not be coming soon. The mild plateau of loss rates that we observed in July was an obvious head fake given these results and the growing economic unrest as evidenced by 6.1% unemployment rate in August. All of this means that expectations for credit losses in the coming quarters should worsen. Net charge-off rates increased in the month of August for all six card issuers, namely American Express, JP Morgan Chase, Citigroup, Bank of America, Discover Financial Services, and Capital One Financial. The most significant month over month increase came from C “+94bps”, JPM “+60bps”and AXP “+51bps”.

C had the most significant gain and gives us reason to believe that it’s US portfolio is doing worse than even they anticipated. The C August trust statistics have launched them to the second highest rate amongst peers.

The off-balance sheet JPM portfolio is now at 5.5%, which shows that even JPM’s prudent underwriting policy is susceptible to the crisis. JPM did have some modestly positive news as they were the only issuer to have essentially flat 30+ day delinquency rates for the month of August.

AXP’s loss rate rose this month is at an unhealthy clip of “+51bps” while delinquency also climbed “+32bps” (the highest increase in delinquency amongst peers). The premium card issuer is providing little evidence that its customers are immune to market conditions. In fact, AXP’s current results coupled with its recent history of rapid loan growth are feeding expectations that their loss statistics could be the worst amongst the credit card peer set. COF had the smallest increase in loss rate at “+7bps”. The group is rounded out by DFS and BAC, who grew loss rates at “+34bps” and “+30bps”, respectively. BAC continues to demonstrate the worst performance in credit quality with trust data showing them experiencing a 7.62% loss rate.

Regards,
Dominic
Sr. Research Director

link to blog post. creditcardindustryrese.../