On Tuesday, in their regulatory filings, Bank of America Corporation (BAC) and Capital One Financial Corp. (COF) reported further drop in their respective credit card defaults for February 2011. As a result, both the companies continue to witness a healthy increase in payments from their credit card customers.
Card companies usually write off the loans that are 180 days past due and assume them as uncollectible. For BofA, net charges-offs (NCOs) on an annualized basis were down to 8.84% of the total balance in February compared with 9.20% in January 2011. This marked the lowest NCOs rate for the company in the last two years.
Similarly, on an annualized basis, Capital One’s NCOs also fell 88 basis points sequentially to 5.91% in February. The company’s NCOs had surged to 10.87% in April 2010 before following the downward trend. According to the filings, the company’s NCOs for international cards decreased to 5.42% in February from 5.72% in January. Similarly, the company’s car loan units’ NCOs too dropped to 1.97% from 2.62% in January.
Delinquency rate, indicating the future rate of default, also plunged for both BofA and Capital One in February. BofA’s delinquency rate for 30 days or more (on an annualized basis) declined to 5.09% from 5.17% in January 2011.
For Capital One, delinquency rate for 30 days or more (on an annualized basis) decreased from 4% in January to 3.83% in February. The company’s delinquency rate for 30 days or more had peaked to 5.8% in January 2009. Further, Capital One’s delinquency rate on auto loans dropped to 6.51% in February from 7.86% in January. However, the company’s delinquency rate for international cards inched up to 5.79% in February from 5.73% in the earlier month.
Apart from BofA and Capital One, other card companies such as American Express Company (AXP), Discover Financial Services (DFS), JPMorgan Chase & Co. (JPM) and Citigroup (C) showed mixed results related to card defaults in their regulatory filings for February. While NCOs were flat for American Express, they rose for Discover Financial, JPMorgan and Citigroup. Similarly, though delinquency rates for American Express were flat, they declined for Discover Financial, Citigroup and JPMorgan.
Decline in card defaults and late payments reflect card owners’ improved financial ability to pay off their debts. This indicates that the economy is stabilizing.
Currently, BofA retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating, while Capital One currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. However, for both the companies, we maintain a long-term “Neutral” recommendation.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
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