Analysis Examines Card Performance During 2003

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R.K. Hammer, an investment banker and credit card portfolio brokerage, has released its model for 2003 credit card industry earnings and noted the industry showed the highest ROA since 1988.

Pre-tax ROA for prime and super-prime portfolios in their reported metrics rose 20 basis points to 4.40% ROA in 2003.

The positive interest spread and fast-rising fee income more than offset higher charge offs and bankruptcies, to push earnings higher again for 2003.

Total Income Yield fell 90 basis points (BPs) for the year to 17.6%, as stiff competition and aggressive low-rate cash advance check marketing programs drove current income yields down from 2002 numbers.

ROA, though, outpaced every previous year since 1988, which was at 4.5% that year, (4.4% for 2003). Among other findings:

* Operating expense rose 10 BPs to 5.0%.

* Charge-offs jumped 40 BPs to 5.8%.

* Cost of funds, blended (not current), fell 160 BPs to 2.4%.

* Pre-tax net income rose a net of 20 BPs to 4.40%.

* Average pre-tax earnings-per-account was reported at $83, up 5.7% from 2002.

R.K. Hammer also offered a comparison of pre-tax net income among the credit card competitors:

* Credit unions: 1.05% ROA (down 5 BPs)

* General Bank Cards: 4.53% ROA (up 25 BPs).

* Monolines (pure-plays): 4.25% ROA (up 42 BPs).

For 2004, the company is forecasting continued pressure on subprime operations, with many shedding assets or entire portfolios to necessarily reduce the federally insured deposits at those credit card organizations, while prime and super-prime should continue to outperform other lending sectors in 2004, it said.

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