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This month's issue, which features the Cards&Payments Exclusive Bankcard Profitability Study and Annual Report, reveals that in 2007 issuers of Visa- and MasterCard branded consumer and commercial cards did quite well, earning a combined $18.08 billion in after-tax profit/return on assets.
Last year's profits are a bit skewed, however, as the best times were at the beginning of the year. By fall, issuers started experiencing, or at least were gearing up for, the effects of the subprime mortgage crisis and the overall downturn in the U.S. economy.
Thus far this year, issuers seem to be holding their own financially, though the signs are a bit mixed.
During a panel discussion at SourceMedia's Card Forum and Expo in April, William Shaw, credit card company president at First Citizens Bank in Roanoke, Va., noted that, because his bank focuses on unsecured credit, "our charge-offs tend to be half the national average, so we feel confident going into rough times."
Other issuers' card programs continue to make money, though not as much as they did early last year .
Capital One Financial Corp.'s U.S. Card segment, for example, reported first quarter net income of $491.2 million. Though that's down 8.8% from a year ago, it's still a profit.
"While obviously impacted by significant credit headwinds, our U.S. card business continues to demonstrate its resilience," Richard D. Fairbank, Cap One chairman and CEO, told analysts during a conference call.
Cap One's net charge-off rate increased sharply, however, to 5.85% of total receivables from 3.72% during the first quarter of 2007. The company also increased its loan-loss reserves by $310 million from the previous quarter to $1.12 billion, nearly double its reserves at the end of the first quarter of 2007.
Meanwhile, Washington Mutual's card services group generated $199 million in net income during the quarter. But that was down 20% from a year earlier.
"Card services continues to generate solid revenue," Kerry Killinger, chairman and CEO, said during a conference call with analysts. "We continue to direct our growth effort to our core retail-banking customers and have scaled back promotions on
a national level to enhance the risk (management) of the portfolio."
One of the mottos of the USA Patriot Act is, "know thy customer." More than just for security purposes, it might work equally well for bankcard profitability. As issuers this year seek to reduce their risks until the economy gets healthy again, they might want to curtail the pursuit of "unknown" prospects.
(Note: The June Editor's Letter addresses some changes to the information in the Bankcard Profitability Study that reflect actual Visa credit card data that Visa released after the May Cards&Payments deadline.)
