Tag Archives: Credit card

Growth Remains Elusive For Leading U.S. Credit Card Issuers

EMI analysis of the largest credit card issuer financial results for 1Q13 reveals the following trends:

  • Outstandings (11 issuers reporting, analysis excludes Capital One, which acquired the HSBC card portfolio in 2012, so its growth rate would skew the data): A weighted average of 11 leading credit cards issuers shows that average credit card outstandings fell 2% year-over-year (y/y) in 1Q13. The three largest issuers – Chase, Bank of America and Citi – all reported y/y declines.  However, outstandings growth came from Wells Fargo (who reported that credit card penetration of retail banking households rose from 30% in 1Q12 to 34% in 1Q13), regional banks with relatively small portfolios (e.g., PNC, SunTrust and Fifth Third), as well as “monolines” (American Express and Discover). These outstandings trends bear out the industry predictions we made in a blog at the start of 2013.

  • Volumes (8 issuers reporting): leading issuers grew credit card volume 6% y/y in 1Q13, which is relatively consistent with recent quarters. However, growth rates have moderated from the 2010-2011 levels, when issuers were overwhelming focused on building volumes. Wells Fargo led the way with a 14% volume growth rate, driven by an 18% rise in new consumer credit card accounts.
  • Revenues and expenses (5 issuers reporting): Revenues rose 2% y/y, led by Discover (+11%) and American Express (+5%). The lack of outstandings growth means that net interest income remains relatively anemic, with a rise of 1% y/y.  Noninterest income grew 5%, with relatively healthy growth rates from American Express, Discover and Bank of America. Noninterest expenses fell 1%, with both Chase and Bank of America reporting significant declines (reductions of 8% and 7%, respectively). Provisions for loan losses rose 5%, albeit from very low levels in 1Q12.
  • Charge-off rates (11 issuers reporting): The weighted average charge-off rate for these 11 issuers was 3.62%, down 65 basis points (bps) y/y, but up 5 bps q/q. 10 issuers reported charge-off rate y/y declines.  The exception was Capital One, which acquired the HSBC credit card portfolio (with a higher charge-off rate) in 2012.  Compared to 4Q12, 10 issuers reported charge-off rate increases and the other two were unchanged, indicating that the era of charge-off rate declines may be coming to an end.
  • 30+ day delinquency rates (8 issuers reporting): 7 of the 8 issuers providing 30+ day delinquency rate data reported y/y declines. As with the charge-off rate, the exception is Capital One. Interestingly, 7 of the 8 issuers reported q/q declines.  The exception was American Express, whose 30+ day delinquency rate was unchanged.  So, while the period of charge-off rate declines may be ending, the continued decline in delinquency rates will moderate charge-off rate increases.

Leading Bank Credit Card Issuer Focus on Higher-FICO consumers

A recent EMI blog highlighted the differing outstandings growth rates for different categories of credit card issuers, with the top three issuers (Chase, Bank of America and Citi) all reporting reduced outstandings, while regional banks are growing outstandings, albeit from much lower bases.

However, further analysis using data from annual regulatory filings reveals significant variations in outstandings within leading bank credit card portfolios for different FICO credit score categories.

The three leading credit card issuers reported lower outstandings between end-2011 and end-2012.  For each of these issuers, outstandings fell in all FICO categories, but the rate of decline was significantly higher for lower FICO segments, which led to higher FICO categories increasing their share of total outstandings.

  • 740+ FICO share of Bank of America outstandings rose from 38% in 2011 to 40% in 2012.
  • The 660+ FICO segment accounted for 84% of Chase credit card outstandings at the end of 2012, up from 81% in 2011
  • Citi has an even high concentration of outstandings held by consumers with FICOs of 660+, at 95% at the end of 2012, up from 91% a year earlier, and only 74% at the end of 2010.

Most of the leading regional bank credit card issuers grew outstandings in 2012, with stronger growth rates for higher FICO segments.

  • Wells Fargo reported y/y growth in all FICO segments, even in the lowest FICO segment.
  • PNC reported overall outstandings growth of 8% in 2012, fueled by an 11% rise for the 720+ segment, partially offset by a 5% decrease in outstandings held by consumers with FICOs below 620.
  • SunTrust followed a similar pattern to PNC, with a 25% increase in the 700+ FICO segment, and a fall of 12% in the <620 segment.
  • However, Regions bucked the regional bank trend with outstandings declines in the higher FICO segments and increases in the lower segments.

These trends are increasing competitive intensity for higher-FICO consumer credit card spending and borrowing, with new card launches, value-added features, bonus offers to drive acquisition and activation, and enhanced rewards programs to boost usage and retention, as well as cross-sell initiatives targeted at the bank’s private banking and wealth management clients.

In addition, the extent of the decline in sub-prime credit card portfolios means that many issuers are turning to non-credit card payment methods (including debit, prepaid and secured cards) to meet the payment needs of consumers with lower FICOs.

How Did U.S. Credit Card Issuers Perform in 4Q12?

Over the past week, leading U.S. credit card issuers have been publishing their 4Q12 and full-year 2012 results.  After we reviewed these financials, we detected the following trends, which are largely consistent with our recent blog on top credit card trends for 2013.

  • Outstandings: The top three issuers continue to report y/y declines in average outstandings, while traditional monolines and regional banks are driving growth. Both Wells Fargo and regional banks focus on cross-selling credit cards to their existing customer base. Wells Fargo reported that credit card penetration of retail banking households rose from 27% in 1Q11 to 33% to 4Q12. Bank of America indicated in its 4Q12 earnings call that it would be focusing on marketing credit cards through the franchise.

  • Volume: Most leading issuers reported strong y/y growth in volume in 4Q12. However, there is evidence that this growth rate is slowing down. American Express‘ 8% y/y growth in 4Q12 was down from 12% in 1Q12. And during the same period, Chase y/y volume growth fell from 12% to 9%.

  • Charge-off and delinquency rates: Charge-off and delinquency rates continue to trend downwards. Of the 11 issuers studied by EMI,
    • Only Capital One reported a y/y rise in its charge-off rate, and this was due to the acquisition of the HSBC card portfolio.
    • 6 of the 11 reported linked-quarter declines in the charge-off rate. 9 of the 11 have rates below 4%, with two issuers (American Express and Discover) reporting 4Q12 charge-off rates of below 3%. Even Bank of America (which is one of the two issuers with a rate above 4%) reported that its charge-off rate is at its lowest level since 2006. In many cases, charge-off rates are now below historic norms, which points to a fundamental change in consumer attitudes to carrying credit card debt.
    • Delinquency rates also declined y/y, although some issuers did reported linked-quarter increases, driven perhaps by both seasonality, as well as some upward movement as issuers start to pursue loan growth.