The trends for the second quarter of 2013 are consistent with the first quarter of the year. The nation’s largest credit card issuers reported strong profits despite relatively stagnant quarter-over-quarter asset growth. Purchase volume showed close to a 10% increase on both a year-over-year and quarter-over-quarter basis. However, most issuers remain cautious from both a credit quality and regulatory perspective as it relates to targeting lower ends of the risk spectrum.
- Receivables Are Relatively Flat: Quarterly loan growth was once again flat, while receivables decreased by 2.2% on a year-over-year basis. Capital One reported the largest decline in receivables, but it is primarily attributable to the accounting treatment associated with the pending sale of the Best Buy portfolio to Citi. Consistent with the first quarter of 2013, American Express, Discover, and Wells Fargo all posted quarter-over-quarter and year-over-year loan increases, while the nation’s largest issuers – Chase, Citi, Bank of America, and Capital One – all experienced year-over-year decreases.
- Attractive Returns Continue: Issuer returns as measured by ROA increased by 89 basis points on a year-over-year basis and declined only slightly on a quarterly basis. If Capital One was excluded from our analysis (due to one-time expenses related to the HSBC acquisition in Q2 2012), industry returns would have increased by 27 basis points year-over-year. While receivables and revenue growth challenges are widespread, the card industry continues to benefit from a benign credit quality environment and low funding costs. With the Federal Reserve signaling possible “tapering” actions on monetary policy, continued soft demand for credit card loans will become more problematic.
- Continued Growth in Purchase Volume: Purchase volume increased by 9.9% on a year-over-year basis and 10.3% quarter-over-quarter. Purchase volume increases were ubiquitous for all of the issuers in our peer group. Industry purchase volumes are now at parity inflation adjusted pre-recession levels.
- Loss Rates Plateau: Loss rates decreased by 11 basis points quarter-over-quarter and, consistent with prior recent prior quarters, 85 basis points year-over-year. The protracted improvement in loss rates is being driven by issuer targeting and underwriting strategies and the fact that household balance sheets have improved dramatically since the height of the recession with household debt to income ratios now at their lowest point in over three decades.
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