Today’s read comes from Yahoo, in a timely view of 3Q18 card profits.
- But the large banks are seeing challenging headwinds with in lending, as charge-off rates — a measure of defaulted balances — continue to rise. The Federal Reserve reported that credit cards in the second quarter of 2018 had a charge-off rate of 3.65%, 11 basis points more than the same quarter of 2017 and 62 basis points more than the same quarter of 2016.
- In third-quarter earnings, JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and Bank of America (BAC) all posted higher income on interest-bearing assets despite pressures from the Fed’s rate hikes. The big banks relied on larger loan books to collect more revenue on higher interest rates.
- One easy place to juice loan growth: credit cards. JPMorgan Chase, which had an impressive 6% year-over-year increase in average core loans, reported that it had expanded its credit card sales volume by 12%.
The article is timely as Mercator Advisory staff cobble together our Outlooks for each functional area as a 2019 planning tool. Our projections for the current year in the Credit function can be found here. You will see that we forecasted further deterioration in the bank card Return on Assets, growing writeoffs, record level debt, rising interest rates, record open credit lines and strong unemployment, each of which are playing out as accurate business barometers.
Yahoo continues on the 3Q review:
- JPMorgan Chase, Wells Fargo and Bank of America all reported increases in their net charge-off rates while Citigroup said net credit losses on its cards increased by 5% year-over-year.
- In the third quarter, revenues on Citi’s branded credit cards were down 3% year-over-year, mostly due to the sale of its Hilton credit cards portfolio to American Express. On its third-quarter call, Citi executives clarified that if the struggling retailer Sears (SHLD) does resort to full liquidation, the total impact would be about $300 million.
Expect to see the Mercator 2019 Outlooks for each area as we head into the end of 4Q18. As a preview, expect slower growth in revolving debt, tighter revenue lines, and slow but steady growth in credit cards.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group