Has the consumer credit delinquency wave crested? It depends on who you ask and what numbers are considered relevant.
Industry analyst David S. Berry of Keefe, Bruyette & Woods Inc., contended last week that a slowing in credit card-related chargeoffs at banks suggests that problems may be leveling off.
Third-quarter earnings reports show the largest credit card issuers are registering improved chargeoff ratios "in spades," he said. Indeed, the ratio actually declined in some instances.
Chargeoffs at Bank of New York Co. dropped 81 basis points in the third quarter, to 4.79% from 5.50% of such loans, and First Chicago NBD Corp. dropped 54 basis points, to 5.96% from 6.50%. Wells Fargo & Co. reported a 36 basis point drop in chargeoffs, to 7.14% from 7.50%, the analyst said.
Mr. Berry has forecast an industrywide rise of 10 basis points in third- quarter net chargeoffs. That is considerably below the Wall Street consensus guess - 30 to 50 basis points.
Mr. Berry's projection may end up close to the mark after all quarterly results are known. George M. Salem, industry analyst at Gerard, Klauer Mattison & Co., said third-quarter earnings reports so far are signaling a 20-basis-point rise.
Mr. Berry's forecast is based on his analysis of the top 15 credit card issuers. Since losses of the largest issuers have closely tracked overall Visa and MasterCard chargeoff rates over the last two years, a small rise bodes well for the entire credit card industry, he said.
"While it is too early to dismiss worries about credit card quality, it seems likely that the worst of the increase in writeoff rates is over," he said.
Putting his optimism to work, Mr. Berry reiterated "buy" investment ratings on Citicorp and Chase Manhattan Corp., both major card issuing banks, and three specialty card issuers - Advanta Corp., Capital One Financial Corp., and First USA Inc. A fourth issuer, MBNA Corp. is rated "market performer."
But another, considerably less sanguine look at consumer credit prospects is offered by Frank R. DeSantis Jr. of Donaldson, Lufkin & Jenrette Securities Corp.
"If you look at what's driving chargeoffs, it's mainly bankruptcies. And bankruptcies are going up," he said. "This problem isn't over yet."
Mr. DeSantis surveyed activity at nearly two-thirds of the nation's bankruptcy courts during July and August and found that filings went up at a time when they should have gone down.
"The fact that filings could be up as much as 3% to 4% from the second quarter, instead of down 3% to 4%, which is the average comparison over the last 35 years, indicates that the bankruptcy cycle is still strong," he said.
Mr. DeSantis pointed out that his report does not break down how bankruptcies affect credit performance for individual card issuers. He noted, as did Mr. Berry, that some issuers are showing some improvement in reducing their credit problems, but emphasized that others are still struggling to cut loan losses in their portfolios.
Mr. Salem said Chase Manhattan appears to have the healthiest credit portfolio among major issuers, while Bank of New York and Wells Fargo - despite recent improvements - are still working to stabilize theirs.
Whatever the short-term statistical changes, Mr. Salem said, credit quality likely will remain a major issue throughout the financial services industry.
"We've had a very serious deterioration in credit quality over the last year," he said, "and it isn't something that's just going to go away in a quarter."
