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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.


  • divvytrader

    2 things you need to understand LD …… credit card companies have been SLASHING credit lines to even creditworthy customers ….. whether thats good or bad can be debated but my moving to slash exposure , you can improve your delinquincies ( oh but by the way ? as you slash credit lines , your AUM shrink and so do your earnings so its not like these guys go back to magically same profits ) . And with Durbin going after fees on debit cards , have a gander at V and MA the last 90 days ( does the term ‘ parachute failed to deploy ‘ come to mind ? )

    #2 …and this is MORE important ……. we now have 6-7 million Americans who have stopped paying their mortgage and the WSJ and NYT runs front page stories regularly now on the new breed of ‘ strategic defaults ‘ who openly brag about taking vacations and buying cars with the mortgage money they no longer paying to the bank ….

    In short ? the entire assumptions of our generation in trading MBS has been stood on its head . With Obama and his band of idiots portraying underwater homes as somehow the fault of the lender and NOT the borrower , its becoming downright SMART to stop paying your mortgage and let bank crawl on its knees to you to offer a modification ……
    Thus plenty of folks paying their credit cards , the car loans , the Sears credit card and skipping the mortgage .

    Lastly ? with so much of our daily life now requiring one to have a credit card to make even daily transactions simpler , its not surprising that folks will do ANYTHING to keep that card functional but skip on other bills ……

    • Mike

      I highly agree with the points you brought up.

      I don’t see this as good news at all. The fact that delinquencies are going down tells me that the general public is becoming MORE and more dependent upon their credit card line. People are paying the minimum payments each month in order to have access to a consistent flow of living money. There are definitely a huge number of folks who would not be eating if their credit card were to suddenly stop working.

      However, something has to pay those minimum payments, so are jobs possibly on the rise? Maybe a few more part time jobs are opening here and there, more and more people are just slowly SQUEEZING their savings for as long as possible. Is this sustainable in the long run? If not then it is a bubble which will pop.

  • Mike

    Another idea:

    UNEMPLOYMENT CHECKS are paying these minimum balances.

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