Credit Card Companies Lose Billions–Mourning Crowds Fail to Gather

Readers who took this column’s advice last week, and held off sending a care package to Jamie Dimon, CEO of JPMorgan Chase & Co., should be glad they did so. Analysts had predicted that the bank would post a profit of $2.5 billion for the fourth quarter of 2009, up from $702 million for the same period in 2008. In reality, the profit, published Friday, was $3.3 billion.

However, the bank’s gains would have been even more stellar had its exposure to consumer credit risks (mostly mortgages and credit card debt) been more limited. Losses in these areas totaled an eye-watering $7.8 billion, although that was down $300 million on the third quarter.

Credit Card News Grim for Other Issuers

JPMorgan Chase & Co. was only one of the major credit card companies to post results Friday. And most of the others, which included Bank of America, Capital One, and Discover, did not fare any better.

Capital One announced that its annualized charge offs (the proportion of all a lender’s credit card debt that it now regards as uncollectible) rose to 10.14 percent in December, up from 9.6 percent the previous month. Discover said that its annualized charge-offs of credit card loans that had been converted into bonds was a more modest 8.68 percent in December. That figure was actually down from 8.98 percent in November.

The worst credit card news came from Bank of America, which revealed an annualized charge-off rate for December of 13.53 percent, up from 13.0 percent in November. BofA has been underperforming in relation to its rivals in this respect for months, a situation that some blame on past lending policies that may have been too lax.

Retail Credit Card Defaults Also Up

Meanwhile, Fitch Ratings released data Thursday that mainstream credit card trends are being reflected among store-branded cards. A press release from the company said:

Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.

“We do not foresee any meaningful improvement in the retail card credit quality in the coming months,” said Managing Director Michael Dean. “U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures.”

Not All Bad News

One analyst not only sees a glimmer of light at the end of the tunnel, but also thinks that it may not be an oncoming express train. Scott Valentin of FBR Capital Markets pointed to falling delinquency rates (the proportion of people who are making late payments) among credit card users as a good sign for future charge offs. If fewer cardholders are falling behind with payments now, then the amount that will have to be written off later should also decline.

Mr. Valentin told Dow Jones Newswires: “We are seeing stabilization, which is the first step toward improvement. As long as we see early stage delinquencies continue to decline, charge-offs should peak relatively soon.” And he went on to forecast that that peak is likely to show up in late spring or early summer.

And his optimism is reinforced by previously reported Federal Reserve data on consumer credit, which suggested that Americans are continuing to pay down credit card debt, which was reduced by $17.5 billion in November, the 14th consecutive month in which the total amount outstanding had dropped.

Don’t Share Credit Card Companies’ Pain

Credit card issuers are unused to pain, and their first instinct is to share it with their customers. Now is a good time to review whether the plastic in your pocketbook provides you with the best deals you can get. Compare credit card rates here.

Published 01/18/10 (Modified 04/23/12)