Author Archives: mronan

Credit Card Lines for Leading Issuers Highlights Continued Deleveraging

Recent regulatory filings from some of the leading U.S. credit card issuers reveal ongoing declines in available credit card lines.

Although the three issuers in the above table all reported credit card line reductions between March 31, 2011 and March 31, 2012, there are some variations among these issuers.

  • Chase’s credit card lines fell 6% during this period, but rose in the two most recent quarters, increasing 1% between the end of 2011 and the end of 1Q12.
  • Citigroup is the only issuer among the three to report U.S.-only credit card lines, which fell 8% between 1Q11 and 1Q12.  However, like Chase, this decline appears to have bottomed out, with virtually no change in the most recent quarter.
  • Bank of America reported the strongest decline among the leading issuers, falling 11% between 1Q11 and 1Q12.  This represents a continuation of a process of retrenchment that has been in place since the start of the financial crisis.  Between end-2008 and end-2011, Bank of America’s credit cards lines fell by 46%.  There are some signs that this decline is tailing off, with a fall of only 1.7% in the most recent quarter.

Indications that the significant reductions in credit card lines are bottoming out provide evidence to support industry expectations that card outstandings will grow slightly in 2012.

Card Networks Report Robust Purchase Volume Growth

With MasterCard and Visa reporting quarterly financials in recent days, we now have a fuller picture of purchase volume trends for the main U.S. card networks.  Each reported relatively strong year-on-year growth in U.S. card spending, led by MasterCard (+13%) and American Express (+12%).

It is notable that Visa and MasterCard are following different paths in growing purchase volume.  Visa, which has been the dominant debit card issuer, is reporting continued slower growth in debit card purchase volume.  This is due to some debit card portfolios switching to MasterCard, as well as the impact of the Durbin Amendment, and has resulted in Visa’s credit card growth outstripping its debit card growth for the past three quarters.

In contrast, MasterCard has reported accelerating U.S. debit card purchase volume growth.  Credit card volume growth has also accelerated, but continues to trail debit card volume.

American Express has consistently recorded double-digit volume growth as it follows its spend-centric approach.  Discover also reported strong growth in 2011, but this has trailed off in recent quarters.

During this period of strong purchase volume growth for both credit cards and debit cards, credit card outstandings have continued to decline, emphasizing the transition in the credit card sector from a lend-centric to spend-centric orientation.  Many leading U.S. credit card issuers are expecting outstandings to grow slightly in the coming quarters, but it is probable that purchase volume growth will continue to outstrip loan growth for the foreseeable future.

Card volume growth should continue to be significantly higher than overall U.S. consumer spending growth, as consumers switch from cash and checks, with particular growth opportunities for cards in categories where they have traditionally had small shares of payment volumes.

In the longer term, card networks and issuers need to plan for new opportunities and challenges created by a changed payments landscape, characterized by demographic shifts, new payments technologies and changing shopping behavior.

Stellar Commercial Lending Growth for U.S. Banks

An analysis of leading U.S. banks’ first quarter 2012 financial results reveals strong growth across the board in average commercial loan balances. This growth is largely due to the economic recovery following the Great Recession. Of the 14 banks studied, 11 recorded double-digit year-on-year increases in their portfolios.

This growth momentum has been maintained in recent quarters, with all banks reporting growth in average commercial loans between 4Q11 and 1Q12, and five having quarterly growth rates of more than 5%. As with the y/y growth, quarterly growth rates were strongest for PNC (+11%, boosted by the acquisition of RBC Bank) and Key (+7%).

Bank are further boosted by the fact that most reported commercial loan charge-off rates declines over the past year. However, increased competition for commercial loans has led to most banks reporting declines in loan yields over the past year.  PNC’s yield on its commercial, financial industrial loans fell 53 basis points (bps) between 1Q11 and 1Q12.  Other banks with substantial declines in commercial loan yields during this period include SunTrust (-47 bps), U.S. Bank (-42 bps), KeyBank (-55 bps) and BB&T (-31 bps).

Banks expect that commercial loans will continue to grow over the next few quarter (barring an unexpected economic crisis) and are pursuing a number of approaches to grow their commercial franchises.

  • Targeting high-potential segments: A number of banks are focusing on particular industry segments. PNC’s overall commercial growth was driven by strong performance in lending to health care and financial services firms. Comerica’s energy portfolio grew by 62%, and its tech and life sciences portfolio increased by 38%. Banks are also targeting different business-size segments, such as middle markets (Chase grew its middle market loan portfolio 19% y/y).
  • Building commercial deposits and cross-selling commercial clients:  Capital One grew commercial deposits 15% y/y. And when banks bring in these new commercial deposit relationships, they then need to develop effective cross-sell programs. Huntington reported a 33% annualized increase in commercial deposits in 1Q12. It also claimed that 33% of commercial clients had 4+ products in 1Q12, up from 25% in 1Q11.
  • Encouraging commercial clients to increase line utilization. Line utilization declined significantly following the financial crisis, as businesses retrenched. Many banks reported that utilization rates remained relatively low in the most recent quarter, but some banks are seeing some improvement. Regions reported a 45 basis point increase in utilization.