Good Signs for Large Issuers

Some large issuers posted continuing signs of improvement in credit card performance in monthly reports for July.

The data could boost confidence that relief from a surge in deteriorating loans will outlast tax refunds and other transitory factors that helped during the spring. But while the pace of job losses has eased recently, analysts cautioned that credit trends could again turn for the worse amid weak employment conditions.

"Generally we see more of a degradation in terms of delinquencies than we saw this month" because of seasonal factors, said Sanjay Sakhrani, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. But it's still uncertain whether that will "necessarily translate to lower chargeoff rates in the fourth quarter versus the third quarter."

Bank of America Corp., whose chargeoff rate was the second highest among the nation's six largest credit card lenders in the second quarter, at 11.7%, reported Monday that monthly delinquency rates in its securitization trust (which does not include balance sheet receivables) continued to drift lower in July. Loans that were 30 to 59 days past due fell 2 basis points, to 1.86%, and total delinquencies fell 15 basis points, to 7.58%.

In a note to clients, Paul Miller, a managing director at Friedman, Billings, Ramsey & Co. Inc., wrote that because there is usually a seasonal increase in July, "flat delinquencies could be viewed as a sign of potential stabilization." But the pace of improvement in the proportion of accounts that have recently fallen behind at B of A — an early indicator of losses — "has been slowing and we would not be surprised [by] a return to delinquency growth in August."

The chargeoff rate at Citigroup Inc.'s trust fell 48 basis points from the previous month, to 10.03% in July. Receivables that were overdue by 35 to 64 days rose 3 basis points, to 1.43%. In JPMorgan Chase & Co.'s trust, loans that were 30 to 59 days past due fell 33 basis points to 0.83%.

At Capital One Financial Corp., the chargeoff rate for the overall portfolio increased 10 basis points from the previous month, to 9.83% in July, and delinquencies increased 6 basis points, to 4.83%. In a note to clients, FBR analyst Scott Valentin wrote that chargeoffs were "significantly below investor expectations"; the company had predicted that the implementation of rules that require it to increase minimum payments for delinquent cardholders would lift its July chargeoff rate by 120 basis points.

American Express Co. posted a 70-basis-point decline in the chargeoff rate for its overall portfolio of U.S. credit card loans from the previous month to 9.2% in July, in line with a preliminary number it provided about two weeks ago.