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The return on assets for credit card banks last year declined 132 basis points, to 1.43% of outstanding balances, adjusted for credit card-backed securitization, from 2.75% in 2007, the U.S. Federal Reserve said in a report published last week. That is the lowest figure recorded since 1986, a few years before the Fed started sending Congress an annual report on the profitability of banks' credit card operations, reports American Banker, a CardLine sister publication. The Fed defines credit card banks as those "established primarily to issue and service credit card accounts," and observers say that likely includes the card units of larger banking companies. "The 2008 rate of return is very low by historic standards, well below the average rate of return of 3.03% since 1986," the report says. "Much of the decline in net earnings can be traced to deterioration in credit quality." The historical comparison is not exact because the ranks of credit card issuers have expanded and contracted since 1986, the report notes. The Fed based its report on data from 18 banks established "primarily to issue and service credit card accounts" with more than $200 million each in assets. At the end of last year, those 18 banks accounted for roughly 77% of credit card balances on the books of commercial banks or in securitized pools, the report states. The Fed report also cites in a footnote the assessment of changes in bankcard revenues and expenses outlined in the annual Bankcard Profitability Study and Annual Report from Cards&Payments, a CardLine sister publication. That study, which reviewed the top 12 issuers of Visa- and MasterCard-branded credit cards, similarly found reduced profitability last year, but not to the same extent as the Fed report. It determined that the after-tax profit/return on assets for those bankcard issuers, which represent more than 90% of overall card receivables, last year was 2.48% of average outstandings, down from 2.71% in 2007.
