Net Credit Writeoff Rates May Peak Before Bottom - Desjardins

by: FP Trading Desk

A second quarter net writeoff rate of 10% from American Express Co. (NYSE:AXP) for its managed US. credit cards service portfolio may have been up from 8.5% in the first quarter, but it is better than the 10.5% to 11% range management forecast at the time of its Q1 earnings release.

Management at the credit card giant said that it is highly likely that the writeoff rate in the next two quarters will be lower than previously forecasted assuming delinquency and bankruptcy trends continue to decline.

This news is positive for the North American consumer sector as a whole because it indicates a possible bottoming in the state of U.S. consumer finances, which is important for export industries in Canada and Mexico, according to Desjardins Securities analyst Keith Howlett.

He has been looking for any information that might help in forecasting when net writeoff rates at Canadian Tire Corp. (OTC:CDNTF) (Canadian Tire MasterCard) and Loblaw Cos. Ltd. (OTCPK:LBLCF) (President’s Choice MasterCard) would peak.

Mr. Howlett was particularly concerned that writeoff rates might keep rising as the number of people working fell, even after GDP growth was restored.

He said in a note to clients:

The American Express experience in the U.S. represents an indicator that net credit writeoffs may peak before the bottom is reached with respect to the number of persons working.

As a result, net credit writeoff rates at Canadian Tire and Loblaw could already be at or near peak levels.