Reuters reports that a number of credit card issuers reported modest improvement in their chargeoff rates for July. While any improvement is good news, it is way too early to break out the champagne. First, some of the improvement may be related to tax refunds being used to pay down debt, a strictly seasonal affair. Second, the chargeoff rates are so elevated and the reduction so mild that the fundamentals still look pretty bad. The one bit of supposed cheer is that American Express posted a second month of improvement and contended that the result was not seasonal. However, readers have also told me that Amex is offering very hefty balance reductions (20%) to business accounts who pay off balances early on credit line products that Amex has discontinued. Being willing to take a 20% loss (with guaranteed adverse selection’ the best credit quality customers will take up this offer, leaving Amex with weaker credits on balance) is not a sign of optimism, at least as far as those accounts are concerned.
Bank of America Corp (BAC.N) in a regulatory filing on Monday said credit card default rates dropped in July after several months of a steep deterioration. JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), and Discover Financial Services (DFS.N) also said bad-loan levels fell.
“It just seems to bear out what we heard in the second-quarter calls, that things seem to be getting marginally better — and I would stress marginally — on the consumer side,” Nancy Bush, founder of NAB Research, said of Bank of America.
Bank of America, the bank with the highest default and delinquency rates among the top credit card issuers, said its charge-off rate — debt the company believes it will never collect on — inched down to 13.81 percent in July from 13.86 percent in June….
Even more encouraging was JPMorgan’s report that defaults fell to 7.92 percent from 8.04 percent for second straight month, while Citigroup’s default rate declined to 10.03 percent from 10.51 percent.
Discover’s charge-off rate fell to 8.43 percent from 8.75 percent.
Capital One Financial Corp (COF.N) bucked the trend, however, as its annualized net charge-off rate rose to 9.83 percent in July from 9.73 percent in June, but beat analysts expectations…
Analysts were also pleased by a continuation of the decline in delinquencies — an indicator of future defaults — in American Express, Bank of America, and JPMorgan….
Credit card defaults usually track unemployment, which is expected to peak at more than 10 percent by year-end. It was at 9.4 percent in July.