By the Numbers

  Take out all the turmoil surrounding the card industry lately, focus only on the numbers, and things look pretty good.
  CCM estimates that bank card issuers made an after-tax return on assets last year of 2.53%, the highest ROA since this magazine began doing its annual profitability study in 1992.
  Other number crunchers have come up with even higher returns. In its Quarterly Banking Profile report for 2003's fourth quarter and the full year, the Federal Deposit Insurance Corp. says 36 credit card banks posted a (let me use my favorite adjective) stratospheric 4.08% after-tax ROA. That return came against the backdrop of the banking industry as a whole making the most money in its history last year, $120.6 billion, and earning a 1.38% after-tax ROA, the FDIC says.
  On one level, credit cards are a highly complex business, with PhDs assessing fraud and credit risk and software engineers devising better ways to switch transactions around the world in a fraction of a second. And in an environment where scale matters, many small and regional banks have concluded it's too difficult to compete against their bigger brethren.
  But in other ways, the card business is still simple: loan money out at a higher interest rate than you pay for funds, and hope the spread more than covers your losses and operational expenses. That's indeed what happened in 2003 and seems likely to last through most of this year.
  Funding costs are down thanks to Mr. Greenspan, and credit losses, while still high, seem to be past their recent peak. The FDIC says the credit card banks in its study saw their net chargeoffs decline by 90 basis points in 2003 to 5.22% of receivables compared with 6.12% in 2002.
  The credit card may be a mature product, but Visa/MasterCard credit issuers last year collectively posted a 7% increase in purchase volume to $946 billion. And signature-based debit cards in 2003 once again posted volume increases of 20-plus percent.
  All of that occurred in a year that saw record consumer bankruptcies of nearly 1.7 million, lots of bellyaching over weak job growth, and Visa and MasterCard give up their seven-year court battle with retailers over debit card acceptance. To some degree, cards beat the odds.
  Interest rates are sure to rise, which inevitably will pinch heavily leveraged Americans currently enjoying low debt-service costs. But that won't start until later this year or next. Until then, it's a good time to be a banker.