Credit card and wallet

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Credit card metrics remained well below prepandemic levels in May and loan growth continued as inflation rises and robust consumer demand hasn’t waned.

Charge-offs crept up last month, according to the average of eight credit card companies listed below. The average charge-off rate of 2.44% increased from 2.13% in April, but hasn’t approached its February 2020 level of 3.83%.

The average delinquency rate of 1.70% was unchanged from April, staying below the 2.85% rate in February 2020.

“It’s hard to tell want vs. needs-based loan growth, yet delinquencies remain benign quarter-to-date and payment rates remain elevated,” wrote Oppenheimer analyst Dominick Gabriele in a note to clients. “Although there are likely pockets of consumers struggling from higher prices, overall the average consumer has continued to manage their balance sheet.”

Loan growth accelerated for the five credit card issuers that Gabriele covers — American Express (NYSE:AXP), Bread Financial Holdings (NYSE:BFH), Capital One Financial (NYSE:COF), Discover Financial (NYSE:DFS) and Synchrony Financial (NYSE:SYF). He sees loan growth stable to improving in June. Excluding SYF, the companies are above their 2019 card average loan levels.

Jefferies analyst John Hecht pointed out that “card net charge-offs remain ~35% below long-term averages at this point, and likely will not hit long-term averages until late ’23, unless macroeconomic conditions change and influence the current normalization pace.”

Payment rates increased to 37.57% due to tailwinds from tax refunds, but are still below the cycle high of 38.2% in December 2021, Hecht wrote in a note to clients. “We expect payment trends to gradually decrease on a go forward basis.” His coverage in the sector includes AXP, BFH, COF, DFS, and SYF.

Looking at specific companies, Wolfe Research analyst Bill Carcache noted that American Express (AXP) “is experiencing the slowest pace of credit normalization among the major credit card issuers, with delinquency rates still declining year over year.”

For the month, the credit card issuer’s delinquency and net charge-off rates were unchanged from April. Also in AXP’s favor, loans are tracking ahead of expectations. Its loan balance of $62.9B exceeded Wolfe Research’s estimate of $60.1B.

Carcache expects American Express (AXP) to continue to outperform relative to issuers that have more exposure to low-end consumers, specifically Capital One (COF), Synchrony Financial (SYF), and Bread Financial Holdings (BFH) (formerly Alliance Data Systems).

Oppenheimer’s Gabriele also prefers AXP to its peers.

2022
Company Ticker Type May April March 3-month average
Capital One COF delinquency 2.22% 2.18% 2.32% 2.24%
charge-off 2.40% 2.19% 2.13% 2.24%
American Express AXP delinquency 0.70% 0.70% 0.80% 0.73%
charge-off 0.90% 0.90% 0.80% 0.87%
JPMorgan NYSE:JPM delinquency 0.67% 0.70% 0.71% 0.69%
charge-off 1.27% 1.24% 1.09% 1.20%
Synchrony SYF delinquency 2.70% 2.70% 2.80% 2.73%
adjusted charge-off 2.90% 2.70% 3.10% 2.90%
Discover Financial DFS delinquency 1.71% 1.73% 1.77% 1.74%
charge-off 2.03% 2.02% 1.75% 1.93%
Bread Financial BFH delinquency 4.00% 3.90% 4.10% 4.00%
charge-off 6.20% 5.20% 5.00% 5.47%
Citigroup NYSE:C delinquency 0.78% 0.82% 0.87% 0.82%
charge-off 1.39% 1.36% 1.23% 1.33%
Bank of America NYSE:BAC delinquency 0.84% 0.88% 0.93% 0.88%
charge-off 1.42%, 1.46% 1.38% 1.42%
Avg. delinquency 1.70% 1.70% 1.79% 1.73%
Avg. charge-off 2.44% 2.13% 2.10% 2.23%

Fair Isaac (FICO) data on U.K. credit cards showed some early signs of inflationary pressures in March 2022, with the percentage of accounts missing one or two payments increasing.