1Q22 results show that Russian exposure affected net revenue at some top banks, but credit cards performed well. Bloomberg reported:
Citigroup Inc., for instance, set aside $1.9 billion in reserves for souring loans that might be affected by the economic fallout from Russia’s invasion of Ukraine. The move weighed on profit, which slumped 46% in the first quarter.
Goldman Sachs Group Inc. executives said the firm logged a $300 million loss after closing out positions and reducing exposure to Russia.
JPMorgan Chase & Co. reported a $524 million loss in its trading division linked to market fallout from the invasion, about $120 million of which was tied to “extreme price movements” in nickel.
Citi’s Jane Fraser noted: “The Russian invasion of Ukraine and the sanctions it triggered unleashed an enormous supply shock on the world, further fueling inflation and placing global growth under considerable pressure.”
But Yahoo Finance indicates that “U.S. consumers haven’t let soaring gas prices, interest-rate hikes or the latest Covid variant slow them down.”
On Monday, Bank of America Corp. offered the clearest answer yet: Average credit-card balances have dropped 8% since the first quarter of 2020, while the lender’s average deposit balance soared 39%, even for those customers with a subprime credit score.
Life is rosy at Wells Fargo credit cards, which has been amping up their game in U.S. credit cards.
Consumer credit card spending remained strong, up 33% from a year ago. All spending categories were up with the highest growth in travel, entertainment, fuel, and dining.
But credit card bankers, do not rest on your laurels. Late 2022 and 2023 will be tough for credit cards, as consumers navigate their household budgets with continued inflation, higher interest rates, and a rocky economy.
Expect that this current month, April, to not see portfolio improvement as IRS refunds are anticipated to be late. The IRS warned, “not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills.”
Revolving debt, which was almost $100 billion larger in February 2022 versus 1Q21, sits well at $1.01 trillion; this will help with non-interest credit card revenue for many issuers. But, with record low charge-offs for year 2021 at only 1.57%, the metric will certainly deteriorate as the year continues. When it does, expect operational costs to increase and charge-offs to take hold.
But for now, top issuers look strong, just keep your eye on the ball because the metrics can turn quickly.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group