Performance reports from Oct. 17 seemed to confirm the new equilibrium in the credit card universe.
Industry executives have asserted that their portfolios are positioned to withstand renewed turbulence in the economy, and that may be true after the years of tough underwriting that followed the recession.
But credit performance is approaching the point where it can improve no further, and reserve releases that have been propping up earnings are swiftly tapering.
This week's disclosures on the performance of securitized credit card loans in September showed that charge-off percentages, or the proportions of loan portfolios that banks determine are uncollectible at an annual rate, fell from August (see chart). Meanwhile, percentages of newly delinquent balances–or those for which payments are overdue by one month to two months and may ultimately have to be written off–ticked up for almost all the nation's largest issuers.
Both moves were in line with seasonal patterns. (Tax refunds that give aid to stretched borrowers during the spring and other factors that appear every year heavily influence the measures.)
But some issuers already have punched below charge-off levels that they forecast will prevail over the long term, and a dramatic recovery in credit quality that has unfolded despite dismal employment conditions appears to be tailing off.
Citigroup Inc.'s charge-off rate, which hit the second highest peak during the downturn, fell the most in September, or by 105 basis points to 5.87%. Early stage delinquencies also held steady at less than 1% of the company's portfolio.
After Citi, JPMorgan Chase & Co. and Capital One Financial Corp. notched the smallest increases in early stage delinquencies at one basis point for each.
The leveling off of the improvement in credit card performance was clear in earnings releases. Bank of America Corp. reported that it drew down the amount it had set aside for U.S. card loan losses by $600 million in the third quarter, compared with a $3.3 billion reduction in the loss cushion in the first half.
Similarly, Chase 's $500 million credit card reserve release compared with $3 billion in the first half. The company projected that charge-offs would fall modestly again this quarter but not much after that.
During Chase’s earnings conference call, Jamie Dimon, the company's chief executive, said, "I think with 9% unemployment, it will be silly to assume dramatic improvement at this point."
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