BOA #1 in Delinquencies, Charge-offs

[keepinitreal]

March 17, 2010

Monthly credit card data released Monday is a mixed bag for issuers. The data shows fewer consumers are significantly late on their credit card payments but major issuers are still having to write off extremely high percentages of their credit card loans.

Delinquency rates are the number of credit card consumers who are at least 30 days late on paying their bill. Of the six major credit card issuers, only Citibank showed a monthly increase in their February delinquency rates. Lower delinquency rates are good for issuers because this indicates they will have to write-off fewer bad loans in the future.

Here are the delinquency rates for the major issuers:

January February
Bank of America 7.35% 7.23%
Citigroup 5.75 5.94
Capital One 5.80 5.51
Discover 5.55 5.50
Chase 4.75 4.67
American Express 3.60 3.60


Last week the Federal Reserve reported that revolving credit, which is primarily credit card usage, fell for the 16th consecutive month, decreasing at an annual rate of 2.3%. Reasons for this include credit card issuers cutting credit limits to reduce the risk of delinquency.

But credit card issuers are still facing challenges. Charge-off rates are still very high. Four of the six major issuers wrote off a greater percentage of their credit card loans in February compared to the previous month.

Here are the charge-off rates for the major issuers:

January February
Bank of America 13.25% 13.51%
Citigroup 9.80 11.29
Capital One 10.41 10.19
Chase 10.91 9.21
Discover 8.58 9.11
American Express 7.00 7.40

The sheer volume and amount of the charge-offs has been a major concern throughout the credit card industry during this economic downturn. According to R.K. Hammer, credit card charge-offs increased 59% in 2009, accounting for $89 billion in losses for banks in the United States. Industry wide, the charge-off rate hit a high of 10.10% in the third quarter of last year according to the Federal Reserve. The charge-off rate was 3.87% in the third quarter of 2006.

http://www.lowcards.com/2010/03/credit-card-issuers-still-facing-tough.html

[catleg]

There's an interesting amount of what I'll call hyperbole (exaggeration) built into these default stats.

Because as anyone who has defaulted knows, in the 6 months prior to chargeoff your balance increases about 20% due to late fees and penalty interest rates, typically 30%. (2.5% a month plus potentially a late fee and an overlimit fee of $29-$49, this could add 0.5 to 5.0% to your balance!).

So for example, if they report charge offs of 10%, it means their loss is really around 20% less, or 8% of their portfolio.

Plus that 10% cited is an annualized rate.

Just in case anyone is crying for these credit card companies (unlikely on this board.)