PaymentsJournal
No Result
View All Result
SIGN UP
  • Commercial
  • Credit
  • Debit
  • Digital Assets & Crypto
  • Digital Banking
  • Emerging Payments
  • Fraud & Security
  • Merchant
  • Prepaid
PaymentsJournal
  • Commercial
  • Credit
  • Debit
  • Digital Assets & Crypto
  • Digital Banking
  • Emerging Payments
  • Fraud & Security
  • Merchant
  • Prepaid
No Result
View All Result
PaymentsJournal
No Result
View All Result

Rising Credit Card Delinquencies, Falling Profits

By Brian Riley
October 13, 2017
in Analysts Coverage
0
1
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn
woman hand holding credit card

woman hand holding credit card close up

Third quarter 2017 credit card results filter in this week, and issuers are indeed beginning to circle the wagons in anticipation of a rugged 2018.  As this story points out, large issuers linked to multi-product financial institutions might weather the storm better than card-focused firms because larger issuers have more complex revenue streams to offset economic change.

Either way, hold onto your hats because we will likely see a material shift in card revenue, risk, and profitability in the coming months.

  • P. Morgan Chase and Citigroup reported solid earnings Thursday but also flashed a warning signal on consumer debt that investors in some other companies should heed.

  • Nevertheless, there was one area that deserves greater investor scrutiny, the continued deterioration in both banks’ U.S. credit-card portfolios. This is more of an issue for Citigroup because its card business tilts more toward somewhat less prime borrowers.

Just about half the US has a credit card with either Citi, Chase or both.  Chase has an extensive branch network, built in part by its recession-era purchase of Washington Mutual, but also through branch building.  Citi focuses on major cities as it rebuilt its branches after a series of financial challenges.  The girth of their card businesses can move the needle on most credit card metrics in the US.

  • At J.P. Morgan, card charge-offs rose to 2.87% of total loans from 2.51% a year earlier. The bank stressed that this increase is well within its expectations, and, indeed, the ratio of losses remains low by historical standards.

  • Citigroup, however, says losses are increasing slightly faster than it had expected. Cards carrying its brand, which generally target less-risky borrowers, saw net charge-offs rise to 2.84% of total loans from 2.25% a year earlier.

  • These levels of losses are easily manageable for megabanks like Citigroup and J.P. Morgan, but the fact that they are worse than anticipated at Citigroup is still worrisome for other lenders who focus more narrowly on credit-card lending.

While Chase and Citi can offset the rise of delinquency and the fall of profit through other operating divisions, this appropriately places concern about those issuers who are focus on some weaker accounts such as Capital One, Synchrony and Alliance data.

  • Worries over credit defaults have dogged the consumer lenders for some time, driving weak share-price performance for all three this year. The numbers reported by their bigger rivals on Thursday suggest these worries are unlikely to fade soon.

The fascinations of mobile banking and payment growth is terrific, but at the end of the day, the credit card business exists to generate interest and non-interest revenue, in search of a profit as we mention in this recent Mercator Advisory viewpoint.  The US credit card business experienced significant growth while recovering from the recession.  Now is the time to get back to the basics of lending.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Read the full story here

1
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn
Tags: ChaseCitigroupCredit Cards

    Get the Latest News and Insights Delivered Daily

    Subscribe to the PaymentsJournal Newsletter for exclusive insight and data from Javelin Strategy & Research analysts and industry professionals.

    Must Reads

    commercial card, Allpay ClearBank Prepaid Payments, wealth transfer

    How Banks Can Capture the Wealth Transfer from Boomers to Gen Z

    June 20, 2025
    embedded lending

    Embedded Lending as a Growth Strategy for ISVs—How to Maximize Revenue Potential

    June 18, 2025
    merchant ai

    Merchants Find More Use Cases for AI Amid Risks

    June 17, 2025
    prepaid payroll

    Taking the Check Out of Paycheck: The Role of Prepaid in Payroll

    June 16, 2025
    Banking-as-a-service BaaS

    Remodeling Main Street: How Community Banks Can Leverage the Banking-as-a-Service Paradigm

    June 12, 2025
    How Employee Performance Enhances the Customer Experience

    Three Strategies to Maximize Loyalty in the AI-Driven World 

    June 11, 2025
    PFM tools

    How FIs Are Cutting Through Subscription Clutter with PFM Tools

    June 10, 2025
    child identity theft

    Stranger Danger: Protecting Your Children from Identity Theft

    June 9, 2025

    Linkedin-in X-twitter
    • Commercial
    • Credit
    • Debit
    • Digital Assets & Crypto
    • Digital Banking
    • Commercial
    • Credit
    • Debit
    • Digital Assets & Crypto
    • Digital Banking
    • Emerging Payments
    • Fraud & Security
    • Merchant
    • Prepaid
    • Emerging Payments
    • Fraud & Security
    • Merchant
    • Prepaid
    • About Us
    • Advertise With Us
    • Sign Up for Our Newsletter
    • About Us
    • Advertise With Us
    • Sign Up for Our Newsletter

    ©2024 PaymentsJournal.com |  Terms of Use | Privacy Policy

    • Commercial Payments
    • Credit
    • Debit
    • Digital Assets & Crypto
    • Emerging Payments
    • Fraud & Security
    • Merchant
    • Prepaid
    No Result
    View All Result