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Good News!! Credit Card Delinquencies Declining

Posted by Larry Doyle on June 16, 2010 1:30 PM |

In the midst of challenging twists and turns along our economic landscape, I find it heartening to come across a bit of positive news.

Declining credit card delinquencies should be juxtaposed to the fact that mortgage delinquencies continue to increase. That divergence indicates to me that American homeowners are making their card payments prior to their mortgage payments. Why? Banks will quickly pull their cards while working with homeowners to modify their mortgages and allowing them to remain in their homes for an extended period.

In any event, we’ll take good news wherever we can find it, and today the American Banker reports, Card Delinquency Drops Beat Expectations:

Credit card delinquency rates continued to improve in May, firming a months-long trend.

The six major issuers on Tuesday reported bigger-than-expected declines in the percentage of loans 30 days or more past due in monthly filings with the Securities and Exchange Commission. Delinquencies are closely watched because they are a reliable indicator of future losses.

“We’re looking at more significant declines in delinquencies than we would on average,” said Sanjay Sakhrani, an analyst at KBW Inc.’s Keefe, Bruyette and Woods Inc.

Chargeoff rates fell at several issuers as well, underscoring a growing belief among industry experts that losses have likely peaked.

More specifically:

At Capital One Financial Corp. the delinquency rate fell for a fourth straight month, by 27 basis points, to 4.8%

At JPMorgan Chase & Co., losses fell to 8.95% of credit card loans outstanding from 9.03% in April. Early-stage delinquencies, or loans 30 to 59 days past due, slipped 9 basis points, to 1%, while total delinquencies fell 18 basis points, to 4.22%. It was the fifth month in a row that total delinquencies declined.

At Discover Financial Services early-stage delinquencies fell to 1.23% and overall delinquencies fell to 4.95%. However, the chargeoff rate inched higher, to 8.82% from 8.42%.

American Express Co. once again reported the lowest losses in the industry. The company’s credit card loss rate dropped 40 basis points, to 6.3%.

At Bank of America Corp., which has had the highest delinquency and loss rates among its peers, delinquencies fell 34 basis points, to 6.39%, while chargeoffs rose 62 basis points, to 13.33%.

Losses in Citigroup Inc.’s credit card portfolio slipped 7 basis points to 11.16%. The percentage of loans 35 days or more past due fell 26 basis points to 5.59%.

Are these improving trends in the credit card industry an indication of an overall improving trend in our economy? I would not go there quite yet. (In fact, the absolute levels of delinquencies and losses remain high by historical standards.) I believe they are an indication of the priority with which people now treat consumer debt versus mortgage debt, and also a sign of stability currently in our employment outlook. Have we seen the peaks in credit card delinquencies?

“I think the peak has been seen, barring any meaningful spike in initial jobless claims or deterioration in the employment situation, or a pickup in bankruptcies,” Sakhrani said.

Those are some big ‘ifs’ but for now we’ll take the good news.


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