Author Archives: mronan

Credit card issuer quarterly scorecard: improved credit quality; volume growth; lending declines

In the latest quarterly financials, the leading U.S. credit card issuers displayed consistent trends in credit quality, purchase volumes and card loans.

  • Credit quality: issuers continued to report strong yearly and quarterly declines in charge-off rates.  The current rate of decline, as well as the high rates of decline in delinquency rates, indicate that charge-off rates will fall further in the next few quarters.

  • Purchase volume: All leading credit card issuers are growing purchase volumes year-on-year, with four issuers reporting double-digit volume growth. In addition, issuers like Chase and Capital One have accelerated volume growth in recent quarters.  In 1Q11, Citi reported a small y/y rise of 0.3%, which followed a protracted period of volume decline.  The 7 issuers listed in the chart had a combined $321 billion in purchase volume, up 9% y/y.

 

  • Average Outstandings: Although issuers have been effective in growing purchase volume, average outstandings for all leading issuers continued to decline year-on-year in 1Q11.  The 8 issuers combined for $515 billion in average outstandings in the quarter, down 18% from 1Q10.  The rate of decline slowed in 1Q11, with combined outstandings for the 8 issuers down 1.4% from 4Q10.  And Discover reported 1.7% quarterly growth in average outstandings.  Many issuers have reported that they expected outstandings to grow in the second half of 2010.

Leading U.S. financial institutions grow marketing spend in 1Q11

Financial institutions (FIs) reported continued strong growth in advertising/marketing spending in their quarterly financials.  The 10 leading financial institutions in the chart below spent a combined $3.0 billion on marketing in the first quarter of 2011, a growth rate of 19% over the first quarter of 2010 (and this comes on top of a 18% increase between 1Q09 and 1Q10).  8 of these FIs reported double-digit growth rates in 1Q11, with particularly strong growth rates for Discover (+60%), Capital One (+53%) and Citi (+31%).

 

For most FIs, this increased marketing has not yet translated into significant revenue growth.  In the coming quarters, they will be expecting to leverage some of the beneficial impacts of their investment (such as growth in checking accounts, as well as improved customer retention and satisfaction) into increased revenue as economic recovery continues.

One FI that can show the bottom-line impact of its marketing investment is American Express.  Following the financial crisis, Amex shifted its marketing focus to drive increases in card spending, which has resulted in strong growth in recent quarters.  In the most recent quarter, its U.S. Card unit reported an increase in card spending of 15%, which translated into a 9% rise in noninterest revenue.

Small business lending trends from banks’ 1Q11 financials

Most banks do not break out small business lending data in any greater detail in their quarterly financials, but Bank of America and Chase both provided some interesting (and contrasting) small business lending-related metrics when they published their first quarter 2011 results last week:

  • Chase grew business banking originations 57% y/y, to $1.4 billion.  In addition, end-of-period business banking loans rose for the second consecutive quarter, to $17.0 billion.  In presenting the quarterly financials, JPMorgan Chase CEO Jamie Dimon claims that the bank is starting to see real small business loan demand
  • Bank of America’s small business loan charge-off rate fell for the sixth consecutive quarter, declining 45 bps from 4Q10 to 8.68% (this is the lowest rate since 1Q08).  However, its small business loan portfolio continued to decline, falling 2.8% in the quarter to $14.3 billion at the end of 1Q11 (although the rate of decline is falling)

So while Bank of America remains focused on getting credit quality under control, Chase has forged ahead and is growing its small business franchise.  As other national and regional banks publish their quarterly financials over the next week, it will be interesting if any other bank has started to grow its small business loan portfolio.