The November data for most credit card issuing companies point to an increase in net charge-offs. Consumer credit quality remains under significant strain as a result of a persistent weakness in labor markets.
Citigroup Inc. (C) announced that net charge-offs for the month of November has increased to 10.29% from a low of 8.79% in October.
Though Citi was the one to see maximum increase in net charge offs, it was accompanied by others lenders such as JPMorgan Chase & Co. (JPM), Capital One Financial Corp (COF) and Discover Financial Services (DFS) whose net charge-offs rose to 8.81%, 9.60% and 8.98% from 8.02%, 9.04% and 8.54%, respectively, in October. Decelerating growth in delinquencies, a gauge of future losses and a shrinking card portfolio has led American Express Co (AXP) to post its sixth straight monthly decline in charge-offs, which touched their lowest level in a year. Bank of America Corp (BAC) was another lender that recorded a decline in net charge-offs for third straight month.
All types of consumer lending have worsened over the past several years, with borrowers falling increasingly behind and lenders writing off many billions of dollars of owed loans. We believe the trend will continue at least through mid 2010. A high unemployment rate and weak capital markets have constricted the consumers’ capacity to pay back loans. We expect this trend to continue in a similar fashion in the near term.
Even though the companies see an improvement in credit card business environment, there is a pending concern about of the enactment of the new Credit Cardholders Bill of Rights Act in U.S. by the Congress, which when finalized might hurt the lenders’ profitability.
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