If the economy is getting better, you’d expect defaults and delinquencies on credit cards to be falling, right?
So are they? Is the credit card picture getting better or worse?
It’s an important question for the direction of the economy: You can’t expect consumers to pick u spending if 1) they don’t have jobs, and 2) their houses are worth less than they paid for them, and 3) they’re behind on their credit cards. And consumer spending is about two-thirds of all economic activity in the United States.
Well, the news on credit card debt is exactly the kind of mixed bag that you’d expect at this early stage of a recovery.
According to February credit card numbers from the nation’s biggest card issuers released on March 15, banks that did a bad job of figuring out who was credit worthy and who wasn’t continue to show rising charge offs. Bank of America (BAC), my nominee for the bank that never saw a borrower it wouldn’t lend to, saw charge offs climb in February to 13.5% from 13.25% in January. Bank of America has led the charge-off hit parade since last summer.
And banks that didn’t throw all lending standards out the window saw charge offs improve in February. At JPMorgan Chase (JPM) charge offs fell to 9.2% in February from 10.9% in January. (Horrendously high but still four percentage points better than at Bank of America.)
Capital One (COF), which many analysts think should be most vulnerable to charge offs since so many of its cards went out to less-credit worthy borrowers, still saw charge offs fall to 10.19% in February from 10.4% in January. (Goldman Sachs recently estimated that 30% of Capital One’s customers were what the investment bank called less-credit worthy borrowers. That compares to a mere 20% to 25% at other big card issuers.)
Almost all of the credit card issuers reported that delinquency rates were down in February from January. That argues for lower charge offs in the future since a credit card has to go delinquent before the bank will call it a bad loan and write it off as a loss.
Citigroup (C) deserves a special call out.
The bank reported that charge offs rose to 11.29% in February from 9.8% in January. That’s a huge move in the wrong direction. And if we’re to judge by delinquency rates, Citigroup hasn’t turned the corner on its credit card problems. Delinquencies in February rose to 5.94% from 5.75% in January. The stock which has rallied quite strongly recently, gave up 2% today.