Delinquency Drop a Good Loan-Loss Sign

Major credit card issuers' delinquency rates declined in December, supporting the growing belief that loan losses are near their peak.

Monthly master trust data released Friday also showed that chargeoff rates declined at most lenders, with the notable exceptions of Bank of America Corp. and Capital One Financial Corp.

"There's been a clear trend toward consumer deleveraging and that is going to continue to help delinquencies," said Jason O'Donnell, senior research analyst at Boenning & Scattergood Inc.

American Express Co. has shown the most consistent improvement. Chargeoffs in its U.S. credit card business dropped an eighth straight month, falling 50 basis points, to 7.1% of managed receivables. Amex's delinquency rate fell a second month in a row, to 3.7%, from 3.9% in November.

JPMorgan Chase & Co. reported the biggest month-over-month drop in loan losses. Its chargeoff rate tumbled 170 basis points, to 7.11%. Early-stage delinquencies — loans 30 to 59 days past due — declined 10 basis points, to 1.13%. Total delinquencies inched up 4 basis points, to 4.94%. The company gave a cautious outlook on consumer credit in its fourth-quarter earnings report, however (see related story).

JPMorgan's chargeoff rate was helped in the fourth quarter by a "payment holiday" it offered in May where minimum payments were reduced to nothing for the month.

Separately, it projected that the payment holiday would lift the first-quarter chargeoff rate by about 60 basis points.

After three months of declines, B of A's chargeoff rate climbed 53 basis points, to 13.53%. Losses on Capital One's U.S. cards portfolio increased 54 basis points, to 10.14%.

Whether the overall improvement continues largely depends on the job market, analysts said. Chargeoffs on consumer loans tend to track the unemployment rate, which stood at 10% in December.

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