Nelms: Charge-Off Growth Rate May Ease This Year

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Growth in credit card charge-offs, which are expected to continue rising during the next few months along with unemployment, may ease later this year, according to Discover Financial Services CEO David Nelms. Nelms tells American Banker, a CardLine sister publication, he expects delinquencies and charge-offs to grow more slowly after next quarter because "we've already seen the huge jump in unemployment rates. Not so many people expect unemployment to jump up quite as much" in the future. Charge-offs will rise at least through Discover's next quarter, Nelms says, adding that he also expects to see "significantly" rising delinquency rates in the near term. In a conference call earlier today with analysts, Nelms said Discover has seen an unusually sharp uptick in charge-offs in recent months. "The thing that caused this cycle to disconnect is the velocity or speed to which you see accounts roll once they go in to default status." But he added that after next quarter, "we would expect a slower quarter-over-quarter increase than what we have been seeing the last two quarters." Nelms also offered analysts a longer-term prediction for the credit card industry at large, without giving it a specific timeline. "I do believe longer term we may see lower charge-off rates in the credit card business. It may shrink a little bit, but you know I think the business model will adjust to earn adequate profits and it may be with a little less risk."