In a letter to JPMC shareholders, Jamie Dimon gave an outlook that “the Biden Administration’s $2.3 trillion infrastructure plan could lead to an economic ‘Goldilocks moment.’” The Goldilocks moment has nothing to do with blondes or bears. For the uninitiated, that means “fast, sustained growth alongside inflation and interest rates that drift slowly upward.
Jamie continued in an interview with WSJ Editor Matt Murray. Dimon’s noted that “the economy is strong through 2023. Consumers are in great shape, home prices are up, and the world is recovering better than it did during the Great Recession”. In short: “there will be a boon.”
What this means to credit card lenders
The collection function worked better than most expected. Results came from a well-fortified risk management scenario, driven by CECL accounting requirements (see here for more on Current Expected Credit Losses). Collection technologies, effective usage of FICO Scores, and government interventions helped navigate the economic storm.
Lending is starting to open up. The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices (also known under the funky acronym of SLOOS), reports “Banks also eased standards across all three consumer loan categories—credit card loans, auto loans, and other consumer loans.”
Unlike the Great Recession, where U.S. revolving debt slipped by more than $150 billion and took two years to rebuild, 2020 saw a more modest decline. As of the most recent publication, the metric stands at $974.4 Billion, up $8 billion over January 2021 and about $100 billion behind the Pre-Covid peak of $1.1 trillion. That is good news for borrowers, merchants, and adequately positioned credit card firms.
A $100 Buy Now Pay Later fintech loan is one thing, but start pushing out credit cards with $5,000 limits and expect strong consumer purchasing coast to coast. We do anticipate some market changes, most of which will be positive. Top banks such as Bank of America, Chase, Citi, and specialized card companies including American Express, Capital One, and Discover appear to have their lending approvals back in gear. Now is the time for credit unions, community banks, and regionals to start facing off again. Slow action will be costly in terms of lost revenue and account attrition.
As we commented two years ago, do not let the fintechs scare you. Now is the perfect time for credit card issuers to get back into lending and thank their collection colleagues for holding the ship steady.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
