JP Morgan Chase stated that they believed consumer spending would remain anemic throughout 2010 and new Credit-card master trust data also indicates continued weakness in consumer spending, which is driving credit-card related losses at major issuers including Bank of America (NYSE: BAC), JP Morgan Chase (NYSE:JPM), Capital One (NYSE: COF), Discover Financial (NYSE: DFS), and others.
The lackluster performance of credit card portfolios at major banks indicate that consumers are still stressed by high rates of unemployment. Delinquency rates have slowed down for most issuers in the most recent set of data, indicating that losses will peak sometime during the first half of this year. However, credit card losses will likely remain high for the rest of the year according to the newly released data.
A recent Wall Street Journal blog indicated that Bank of America had the highest write-off rate during the month of December of the banks that had reported their losses, coming in at 13.53%. That rate reversed a 3 month trend of declining losses. Bank of America is down about 2.7% across all consumer loans, where as Discover is down by 1.7% and Capital One is down about 1.1%
Major credit card issuers will continue to face losses over the next 12 months as the industry copes with changes from the impending Credit CARD Act. Banks will no longer be able to charge certain fees and will have much less flexibility in changing consumers’ interest rates as market forces necessitate a change in interest rate. As a result, the banking industry will make changes such as charging more annual fees, but there will be a lag time before the industry fully adjusts.
The changing regulatory environment as well as high unemployment and underemployment rates will be a one-two punch to credit card profits during the next year as well as other forms of consumer credit. Many analysts predict that the unemployment rate will remain above 10% for most if not all of 2010 and it will be some time before credit card businesses consistently make a profit.
