Even with delinquencies at record levels, rates are projected to fall…
Lenders have seen the largest number of credit card defaults since 1983 and increases in the triple-digits of charge-offs since 2007. But according to regulatory filings by the major credit card lenders, defaults and delinquencies are falling and could be lower than estimated in the second half of the year; the first sign that default rates have reached their peak. According to Bernstein Research, the average 30-day delinquency rate decreased in May to 1.57% from 1.71% the month before. It was the second month in a row that 30-day delinquency rates declined. And with American Express predicting improvement in the second half of the year, there may be a glimmer of hope about consumer credit.
- Capital One Financial Corp. announced a modest rise in annualized net charge-offs in June, much smaller increase than was expected. Delinquent accounts of 30 days or more saw a modest drop to 4.77% in June from 4.9% in May.
- American Express announced delinquent accounts of at least 30 days declined from 4.7% in May to 4.4% in June. Although American Express charge-off rates grew to 10% from 8.5%, it was below the projected rate of between 10.5 and 11%. “Assuming delinquency and bankruptcy trends continue to be below previously expected levels, the company believes that it is highly likely” that write-offs for the third and fourth quarters on U.S. cards “will be better than previously forecasted,” the company said.
- JPMorgan Chase, the largest issuer of credit cards in the U.S., saw a 0.32% decrease of delinquent accounts from from 8.36% in May to 8.04% in June. Charge-offs fell to 9.9% from 10% in May.
- At Discover Financial, default loans fell from 8.91% in May to 8.75% in June.
- Capital One saw a lower percentage of defaulted loans of 9.41 compared to May’s 9.73.
Analysts believe that the somewhat favorable indicators may be seasonal and remain concerned about credit card charges. One factor that continues to be of concern for a recovery of the financial sector of the U.S. economy, is unemployment, which rose to a 26 year high of 9.5% in June. At the same time, the decrease in May delinquencies could be due to consumers taking advantage of one-time economic stimulus benefits, such as income tax cuts, to pay down debt. The credit card industry does not forcast profitability unil 2011..
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