Chillin' out till it needs to be funded
November data for American Express, Discover and Capital One (pre 2010 deal portfolio) shows a very competitive industry with an almost equal share of the credit cards market in terms of a loan growth for November, outstanding balances of $50 bln for the three issuers. JP Morgan, Bank of America, and HSBC could have added another $100 bln this month.
New revolver debt data for the entire industry shows a net addition of $2 bln. The first thing to note in commentary for Consumer Finance this year is that Charge off rates ( that apply for overdues of more than 6 months and are losses on the P&L account) were more than 10% for all the players mentioned above in 2010. Even at Citi , charge offs on the US portfolio were near 8% last year.
This November, Capital One proclaims a 4.9% charge off rate less than half. The last law suits against bank issuers were in June 2011 when JP Morgan corrected its collection practices. Credit Card Debt has been falling for almost 36 months earlier run by legacy charge offs starting falling since September 08. As of last October Credit Card Outstanding ( revolving outstanding) was down to $800 bln from a peak of $973.6 bln. Since then in the next 12 months, Card debt has fallen slowly but continues dropping to $773 bln before showing a jump in October data and in November card company reports (98% of allr evolving credit G.19 report, December 7, anasdaq.econoday.com)
The second important thing to note about the return of cards in 2011 is that in volumes, most of the growth in Consumer Finance in the last six months has been in Auto loans as Auto and Light truck sales recovered a 1.1 mln cars a month rate
On the other hand delinquency rates (for unpaid dues over 90 days old – past due) are even better at Capital One and Discover , dipping below 3% from 3.5% last year
The fragmented Card industry in the USA has JP Morgan trying to increase its Debt outstanding to $128 bln from a little over $100 bln at the start of April 2011. Despite making a negative return on assets of 0.54% on its US card portfolio, Citi had a $73 bln portfolio at the end of 2010. Bank of America had a $177 bln outstanding portfolio, by far the largest of which International businesses of nearly $30 bln in assets are on sale including the $10 bln, 5.5 mln customer MBNA accounts sale to TD BofA’s revenue alone for 2010 from Global Card Services counted $26 bln after the impact of new CARD act ( loss of $1.5 bln in revenues) and the Durbin amendment in 2011 ( $3.5 bln impact) and $5 bln from MBNA international portfolios, means still an income of $20 bln for the $130 bln portfolio.
Banks started pushing Credit Cards even as they reduced and eliminated annual fees on Debit card issues and interchange fee on Card transactions was rationalised to a higher 16 c per transaction limit . Retail spending has been up almost 5% year on year and can no w be correlated back to the latest additions to card balances for consumers.
After the introduction of the CARD Act, APRs on new cards have gone up 2% to 14.68% and existing cards to 13.1% One in 5 Card holders ( 180 mln in the US) now hold contactless credit cards too even as revolving credit per holder has come down to $15k, lower by $3.5 k since 2008
Capital One wrote off $6.7 bln in 2010 according to its report at a rate of 5.2% ( on average balances) in the latest month however the charge off rate has dropped to below 3% at $200 mln for November 2011 Its Card services income of $9.8 bln in 2010 will therefore likely increase and be subject to lesser charge offs in 2011.
The HSBC deal under review currently will add $25 bln in Card balances outstanding once it is approved after the ING approval makes its questions on diversity and liquidity immaterial for the HSBC portfolio.
American Express which has 49 million cards issued compared with 269 mln Visa and 171 mln Master cards, also reported its outstanding balances of $51.4 bln with a M/M growth of 1.6% and a Y/Y growth of 3.6%. Delinquency rates are a low 1.5% and charge offs 2.4% . Capital One balances have grown back to $54.8 bln, up 3.2% from last year and 1.8% from October. Its Delinquency rate of 4.29% in November ( on monthly average) was even better in October at under 4% Its delinqunecy rates are higher at 3.73% but an improvement over the last three years. Discover’s end November balances of $47 bln also confirms the new found growth blip up 3.3% from last year and 1.0% over October. Though Discover’s own cards are less used than Master, Visa and Amex, its delinquency rates and charge offs are still signs of a change for the industry at 2.39% and 3.24% ( from 7%) respectively
The large issuers also reported an upgrade in their Cards business this month according to this NASDAQ/WSJ report
Several large card issuers continued to see improvements in loan performance in November.
Bank of America Corp. (BAC), which reported data for loans packaged into securities, said its delinquency rate fell to 3.96% from 3.97% in October. Its charge-off rate fell to 5.67% from 5.98%.
J.P. Morgan Chase & Co.’s (JPM) delinquency rate for securitized loans fell to 2.54% from 2.55% in October, when the rate had inched up from the prior month. However, charge-offs were flat at 4.18%.
The fact that some lenders, such as Capital One, saw their delinquency rates flatten in the quarter is a sign that loan portfolios are returning to historical performance, which has been expected, said Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods.