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Credit card delinquencies and net charge-offs continued to creep up in November, extending the trend of credit normalization over the past couple of years.
While COVID-19 initially triggered a sharp drop in spending in the spring of 2020, the unprecedented fiscal support from government led to a surge in spending and gave consumers a financial cushion. That resulted in unusually strong credit quality. At the least, most consumers kept up with their credit card payments, and many were able to pay down account balances. Now the stimulus checks have stopped and consumers’ savings are dwindling.
“November card trends reflected ongoing credit normalization, as well as robust growth in receivables driven by consumer demand/inflation,” wrote Jefferies analyst John Hecht in a note to clients on Friday.
Loan balances rose 2.5% M/M to $443B, or 15.1% Y/Y, on increased demand for credit, according to his note. “Issuers have yet to tighten credit until they see further confirmation of consumer weakness,” he observed.
The average delinquency rate of eight card lenders rose to 2.29% in November, up from 2.21% in October and from 1.67% in November 2021, as seen in the table below. That’s still more than 100 basis points lower than the average delinquency of 3.61% in November 2019.
Net charge-offs are getting closer to their prepandemic level than delinquencies. The average net charge-off rate of 2.59% climbed from 2.42% in October and from 1.78% in the same month a year ago. The most recent month’s average was only 25 basis points better than the 2.84% posted in November 2019.
Bread Financial (NYSE:BFH), formerly Alliance Data Systems, is getting closer to prepandemic levels than its rivals. Its delinquency rate is only 50 bps better than its November 2019 level and its net-charge-off rate is only 20 basis points better.
Since Tuesday’s close, American Express (NYSE:AXP) shares fell 7.1%, Capital One Financial (NYSE:COF) -8.9%, Discover Financial (NYSE:DFS) -7.2%, Bread Financial (BFH) -3.1%, Synchrony Financial (NYSE:SYF) -6.3%.
“Certainly, the trend of credit loss normalization is showing through in the past several months, but [Thursday’s] pullback feels like an overreaction and we believe the weakness in COF and AXP provides an opportunity to add to positions,” said Baird analyst David George.
| 2022 | 2019 | |||||||
| Company | Ticker | Type | November | October | September | 3-month average | Change in bpsNov. 22/19 | |
| Capital One | COF | delinquency | 3.32% | 3.17% | 2.97% | 3.15% | 3.91% | -59 |
| charge-off | 3.14% | 2.93% | 2.23% | 2.77% | 4.43% | -129 | ||
| American Express | AXP | delinquency | 0.90% | 0.90% | 0.90% | 0.90% | 1.60% | -70 |
| charge-off | 1.00% | 0.90% | 0.80% | 0.90% | 2.40% | -140 | ||
| JPMorgan | NYSE:JPM | delinquency | 0.73% | 0.73% | 0.69% | 0.72% | 1.17% | -44 |
| charge-off | 1.64% | 1.19% | 1.15% | 1.33% | 2.20% | -56 | ||
| Synchrony | SYF | delinquency | 3.60% | 3.40% | 3.30% | 3.43% | 4.60% | -100 |
| adjusted charge-off | 3.70% | 3.40% | 3.00% | 3.37% | 4.90% | -120 | ||
| Discover | DFS | delinquency | 2.36% | 2.23% | 2.11% | 2.23% | 2.61% | -25 |
| charge-off | 2.46% | 2.10% | 2.01% | 2.19% | 3.46% | -100 | ||
| Bread Financial | BFH | delinquency | 5.40% | 5.40% | 5.70% | 5.50% | 5.90% | -50 |
| charge-off | 6.10% | 6.10% | 5.00% | 5.73% | 6.30% | -20 | ||
| Citigroup | NYSE:C | delinquency | 0.98% | 0.90% | 0.85% | 0.91% | 1.58% | -60 |
| charge-off | 1.33% | 1.32% | 1.12% | 1.26% | 2.57% | -124 | ||
| Bank of America | NYSE:BAC | delinquency | 1.02% | 0.98% | 0.92% | 0.97% | 1.63% | -61 |
| charge-off | 1.33% | 1.38% | 1.31% | 1.34% | 2.60% | -127 | ||
| Avg. delinquency | 2.29% | 2.21% | 2.18% | 2.23% | 3.61% | –132 | ||
| Avg. charge-off | 2.59% | 2.42% | 2.08% | 2.36% | 2.84% | -25 | ||
SA contributor Avi Gilburt warns about Capital One Financial’s (COF) rising delinquencies and above-average exposure to subprime borrowers. Meanwhile, SA contributor Gary Gambino considers Synchrony Financial (SYF) as cheap even if loan losses increase.
Image and article originally from seekingalpha.com. Read the original article here.