Credit card profitability is falling back toward earth, but analysts are debating how much of a disaster that is.

Loan delinquencies and loss rates are up, and could worsen if an economic slowdown comes sooner rather than later.

Facing these facts at a panel discussion during the American Bankers Association's bank card conference this week, financial experts found plenty of cause for continued - if muted - optimism.

Thomas P. Facciola, a Salomon Brothers vice president, predicted card loan losses would reach the mid-5% range next year, "rising when the recession comes to greater than 5.5% and maybe as high as 6%."

His mention of the R-word caused a stir in the audience and among the other panelists: investment banker Bruce K. Anderson of Welsh, Carson, Anderson and Stowe; Moshe A. Orenbuch, senior research analyst at Sanford C. Bernstein & Co.; and Richard K. Weingarten, principal, Montgomery Securities.

But all expressed confidence in the card industry's top stock-issuing performers, such as First USA Inc. and MBNA Corp.

And Mr. Weingarten also said the transaction-processing industry - companies like First Data Corp. that he follows and with which Mr. Anderson engineers deals - has recession-proof characteristics.

Undaunted by the potential for gloom, Mr. Orenbuch said, "A recession with increased losses and falling interest rates would not be bad for profitability" of credit card companies.

Mr. Facciola noted that returns on bank card assets, once typically 4%, had dropped to 2%. And "people could get used to 1.5%," he said.

That would still be pretty good next to the 1% ROA benchmark for which many traditional banks aim.

But Mr. Orenbuch said it may be misleading to focus on industry averages. Some portfolios continue to flourish, he noted; others are seriously underperforming; and still others are hindered by low-rate cobranding offers.

The greatest cause for concern, given the prospect of a recession, is unused credit lines. "I am quite concerned with the credit lines of inactive accounts," the Bernstein analyst said. "I worry about the $1.2 trillion of unused credit."

Mr. Weingarten did not hedge his optimism about the transaction- processing companies. "The growth prospects are phenomenal," he said. These companies' price-earnings multiples tend to be double the 15 to 20 typical for credit card issuers.

The longer-range forecast is sunny regardless of the economy, he said, because transaction processors benefit from growth in good times, cost- cutting pressures in downturns, and a growing preference for outsourcing.

Mr. Weingarten added that growth prospects abound for merchant processors. Three-fourths of all payments are still made by cash or check, he said, and supermarket sales, one of the biggest growth opportunities, currently account for only 6% of bank card volume.

The San Francisco-based analyst said an explosion of debit card usage could compensate for any decline in credit card volume, should one occur.

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