Tag Archives: U.S. Bank

Banks Cut Marketing Spending in Absence of Revenue Growth

EMI analyzed bank marketing data of 25 leading U.S. banks and found a 4% y/y decline in marketing expenditure for the first nine months of 2013.  During this period, marketing spending accounted for 2.6% of net revenues.

Our analysis finds that marketing expenditure levels and changes vary significantly by bank type .

  • Monolines: These banks are characterized as having a strong dependence on their credit card operations.  The three banks in this segment—American Express, Discover Financial and Capital One—allocated 7.8% of their revenues to marketing in the first 9 months of 2013.  Capital One’s spend levels are relatively lower, as it has transitioned over the past decade to be more like a full-service bank, with a network of 900+ branches.  The ‘monoline’ segment is also bucking the overall trend, with a 4% y/y rise in marketing spend.

  • National banks: These megabanks invest about 2% of revenues in marketing to promote their brands, support their extensive physical and virtual channels, and advertise their wide array of financial products and services.  As these banks (which include JPMorgan Chase, Wells Fargo, Citigroup and Bank of America) are under pressure to maintain profitability in a low/no growth environment, they reduced marketing spend 8% y/y.  Wells Fargo stands out, insofar as its marketing spend as a percentage of revenues is much lower than its peers, as it has traditionally focused its revenue-generating activities on its branch network.  However, Wells Fargo was the only one of these four national banks to report y/y marketing growth for the first three quarters of 2013.

  • Regional banks: The 18 regional banks analyzed by EMI allocated 1.6% of their revenues to marketing over the first 9 months of 2013.  Under pressure to cut costs and maintain profitability in the absence of revenue growth, these regional banks cut marketing budgets by 13%, led by large regionals like KeyBank (-31%) and SunTrust (-29%).

The extent to which banks ramp their marketing spend will be based on whether they see significant revenue growth opportunities, which in turn is dependent on economic growth.  And there are some positive signs in this regard, with the OECD projecting that U.S. GDP growth will rise from 1.7% in 2013 to 2.9% in 2014 and 3.4% in 2015.

Tentative Recovery in U.S. Credit Card Lending Continues in 1Q13

EMI’s analysis of recently-published U.S. bank data by the FDIC reveals that credit card outstandings rose 1.6% y/y to the end of 1Q13.  Outstandings have been recovering in recent quarters, following a protracted period of declines as a result of the 2008 financial crisis.  In addition, net credit card charge-offs continue to decline, falling 12% y/y in 1Q13.

Our analysis also finds that:

  • 1,238 U.S. banks (19% of the total) have card assets, with 6% of banks having more than $1 million in card assets.  55 banks have more than $100 million in outstandings, with just 23 banks holding more than $1 billion in credit card loans.
    • Of the 55% with more than $100 million in assets, 31(56%) reported increases in their credit card loan portfolios between end-1Q12 and end-1Q13
  • The three largest credit card issuers–Citibank, Chase and Bank of America–all continued to report credit card loan declines, as they continue to deleverage.  The cumulative decline for these three issuers was 5%.
  • The former “monolines”–American Express, Discover and Capital One–all increased outstandings.  Capital One reported a 44% increase, largely due to the acquisition of the HSBC card portfolio.  American Express grew credit card loans 6%, with Discover’s outstandings rising by 7%.
  • Many regional banks continued to increase credit card lending, albeit from significantly lower bases than their national bank counterparts.

These trends in credit card outstandings–slow overall growth, declines among the big three issuers, growth for monolines and regional banks–are consistent with industry predictions that EMI published in a blog earlier this year.

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.