Capital One, Discover prepping for next downturn

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In the latest sign of concern about the trajectory of the U.S. economy, two large credit card issuers signaled greater caution Tuesday about their willingness to make borrowing capacity available to consumers.

The comments by the CEOs of Capital One Financial and Discover Financial Services suggested that the card industry has moved into a new stage of preparation for the eventual end of the nation’s decade-old economic expansion.

Discover CEO Roger Hochschild said that loan growth across the credit card industry is probably modestly slower than it was last year — a development that he attributed partly to softening retail sales and partly to card companies’ tighter credit policies.

“Most issuers are becoming marginally more conservative,” Hochschild said during remarks at an investor conference.

Revolving consumer credit grew by 3.1% across the industry last year, according to the Federal Reserve, its slowest increase since 2013.

Speaking at the same conference on Tuesday, Capital One Chairman and CEO Richard Fairbank said that his company has held back on the amount of credit it offers to customers who carry a balance on their card each month. He explained that decision by pointing to what he characterized as the late stage of the cycle.

The executives’ remarks were the latest sign that the credit card companies, which are more exposed to recessions than many other lending businesses, are anticipating another downturn.

Fitch Ratings said in a report last week that some of the largest card issuers have reduced credit lines and terminated inactive accounts over the past year — moves that should limit their eventual losses.

There are also some signs that a weakening U.S. economy has already started to hit the credit card business, though the evidence on that front is more mixed.

Typically, the percentage of credit card customers who are delinquent on their bill falls between the fourth quarter of one year and the first quarter of the following year, as consumers use their tax refunds to pay down debt, Fitch stated.

But that trend did not hold last quarter, according to the rating agency, which said that 2.3% of credit card loans at the largest general-purpose card issuers were at least 30 days late in the first quarter.

Fitch expects asset quality in the credit card business to deteriorate further during the rest of 2019, due to both a weaker economic environment and seasonal trends.

But the card industry executives who spoke Tuesday were more upbeat about the ability of borrowers to keep meeting their obligations.

“As I look across the card industry as a whole, and especially prime issuers, you continue to see very stable credit, I think reflecting a still very strong economy,” Hochschild said.

Mark Mason, chief financial officer at Citigroup, said that the New York bank tracks a number of potential warning signs for the credit card business, including whether customers are reducing the size of their monthly payments until they fall to the minimum required amount.

“We watch those trends to see if there are any leading indicators of concern,” Mason said at the investor conference. “We’re not seeing any major concern at this point.”

Jon Prior contributed to this story.

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Credit cards Credit quality Economic indicators Capital One Discover Financial Services Citigroup
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