Big Six Card Lenders Give Up Market Share

Borrowing on credit cards is close to bottoming out, according to lenders, but the nation's biggest players have had to cede market share during the sharpest contraction in the industry's history. Now they are increasingly fighting for the same kinds of customers.

Between the second quarter of 2008 and the first quarter this year, receivables reported by the six largest issuers slipped more than 4 percentage points, to about 66% of total revolving credit reported by the Federal Reserve. (See charts, which reflect lenders' U.S. or North American portfolios where available.)

Discover Financial Services bucked the trend: the roughly 6% decline in its credit card loans was smaller than at its major competitors, and its share actually increased about 0.7 of a percentage point, to 5.6%. (Data for Discover is for its fiscal quarters, which end one month before calendar quarters.)

Much of the reduction in revolving credit came from pools earmarked for runoff. Citigroup Inc.'s retail-partners portfolio, which is housed in the company's Citi Holdings repository for noncore businesses, shrank almost 40% from the second quarter of 2008 to $41 billion in the first quarter this year, compared with a 13% fall in the Citi-branded portfolio, to $73 billion.

Bank of America Corp.'s card portfolio contracted by almost 30%, to $134 billion. In the company's earnings call in April, Chief Executive Brian Moynihan said the business's revenue had declined as "we continue to run down the books of the loans we don't want."

But chargeoffs — a principal cause for the drop in outstanding credit card loans — have eased rapidly, issuers are stepping up marketing expenditures and the powerful seasonal undertow that prevails in the first quarter is past. JPMorgan Chase & Co. said in April that it planned to more or less finish the process of paring its balance-transfer book and the card assets from its Washington Mutual Bank acquisition in the third quarter, and projected that its overall portfolio would stabilize in the second half. (The Wamu credit card loans have been cut by more than half since JPMorgan Chase bought them in September 2008.)

Capital One Financial Corp. has turned to portfolio acquisitions and retail partnerships — including a recent deal with Kohl's Corp. — to fill out its balance sheet. The company said in April that it believes the first quarter would mark a low point for its domestic card receivables.

But during its earnings call, CEO Richard Fairbank said that Capital One, like the rest of the industry, was focusing on high-credit-quality customers, including those who tend to pay off their accounts every month. He said that "loan balances and revenues from these customers ramp up gradually over time."

"Supply has continued to rebound in the marketplace," Fairbank said of the competition. "It is not lost on me that so many players are going right at, for example, the top end of the market."

While portfolio yields have held up well despite landmark legislation that prohibited a wide range of pricing practices, Fairbank said issuers have been richening rewards inducements and that account origination costs had become high. He predicted that cardholder attrition would rebound after a period during the recession when consumers "wanted to hang on to what they have."

In addition to the obstacles posed by heated competition, Fairbank was cautious about the overall environment for loan growth.

He said that while household deleveraging is stabilizing, "I don't think the consumers [have] fully demonstrated how much collectively they are going to step up and be the same consumers they were before with respect to cards."

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