Consumers' aversion to credit cards seems to be waning.
Revolving credit is rising, and many credit-card issuers have
revved up marketing in hopes of winning new customers.
On Thursday, American Express Co. (AXP) and Capital One
Financial Corp. (COF) said U.S. card balances grew in the fourth
quarter.
American Express, which lends mostly to affluent customers, said
its portfolio of U.S. card loans grew 4% from a year ago to $53.7
billion.
Capital One's credit card loans in the U.S. grew 5.1% from a
year earlier, to $56.6 billion. Most of the loan demand came
towards the end of the quarter, Chief Financial Officer Gary Perlin
told analysts during a conference call. Chief Executive Richard
Fairbank said the bank sees "continuing signs of traction in our
domestic card business."
The holiday shopping season likely helped drive the increase,
but experts say some consumers have also grown more confident in
their ability to use credit cards after reining in spending
following the recession.
"What's going on is a combination of increased confidence on
both the issuer and the consumer side," said Ben Woolsey, director
of marketing and consumer research at CreditCards.com, a website
that tracks credit-card offers. "The indicators are starting to
look positive. I think the combination of holiday spending and
consumer sentiment is causing people to feel a bit freer to spend
on credit cards."
Many borrowers shunned plastic following the recession, as they
worked to rid themselves of debt hangovers brought on when credit
cards were easier to get. Banks also pulled up stakes, targeting
consumers with only the most pristine credit.
But as more borrowers paid their bills on time, issuers grew
more aggressive in going after new customers last year.
U.S. consumers received 447 million credit-card offers in the
mail in November, up from 346 million a year ago, according to the
most recent monthly numbers available from Mintel Comperemedia.
Bank of America Corp. (BAC) said Thursday new U.S. credit-card
accounts grew 53% from a year ago in the fourth quarter. Its loan
balances actually declined, though purchase volume on its cards
increased.
"If you're running a bank, you have to be looking at the
[credit] card business and pushing it hard," said Donald Fandetti,
an analyst with Citigroup Inc. (C), citing consistent returns the
business has been posting.
Some credit-card issuers, like American Express Co. (AXP),
rebounded from the credit crisis more quickly than their
competitors.
American Express "used that upside to reinvest in marketing to
get in front of" competitors, Fandetti said. Other banks took
longer to bounce back, weighed down by capital constraints, and are
now feeling more confident in pursuing growth, he said.
The quest for loan growth has become more pressing, though, with
expectations that credit-quality improvements will slow. That is
expected to eliminate some of the benefits lenders have received
from freeing up loss reserves intended to cover bad loans.
American Express' delinquency rate, or percentage of loans at
least 30 days past due a payment, for U.S. card loans was 1.4% in
the fourth quarter, down from 2.1% a year ago and down from 1.5% in
the third quarter. The rate of U.S. card loans the company wrote
off was 2.5% in the fourth quarter, down from 4.8% a year ago and
down from 2.9% in the third quarter.
The company said the money it set aside to cover souring loans,
called loan-loss provision, was $409 million, up from $239 million
a year earlier and $249 million in the prior quarter, reflecting a
larger reserve release in the year-earlier period and higher loans
outstanding in the current period.
At Capital One, U.S. credit card-loan write-offs fell
substantially from a year earlier, but rose 15 basis points from
the third quarter, to a still low 4.07%. Delinquent loans also
rose. "We expect that the domestic card credit metrics will
continue to follow normal seasonal patterns in 2012," Fairbank
said.
"By our tally, we are gaining share in the card business,"
Fairbank said. "I think we were gaining share in the card business
across several categories including purchase volume originations
and loan growth."
Capital One made major investments to keep systems and
infrastructure up with its rapid growth, CFO Perlin said. In the
fourth quarter, marketing expenses in particular rose 36.4%, to
$420 million, "to restart our loan-growth engine," Perlin said.
Revolving credit, which is primarily comprised of credit-card
balances, grew at a seasonally adjusted annualized rate of 8.5% in
November to $798.3 billion, the Federal Reserve reported this
month.
The combined average balances at the six largest card issuers
are expected to grow about 6% in 2012, to $517 billion, after
falling more than 5% to $488 billion last year, according to
Moody's Investors Service.
While balances are rising, the global economy could continue to
weigh on consumers, who are more willing to use credit cards but
are still careful about getting into debt.
"Consumers continue to be cautious about taking on credit card
loans," Dan Henry, chief financial officer of American Express,
said during a conference call Thursday.
Some of the growth in credit may also be due to banks raising
checking account fees and trying to charge customers to use debit
cards, Woolsey said.
Many banks have added new checking fees and eliminated
debit-card rewards programs. A handful, including Bank of America,
attempted to charge customers monthly fees to use a debit card in
response to new regulations that limit how much merchants pay to
accept debit cards. Those banks eventually scrapped those plans
amid consumer uproar.
"There's been...some shift from people that maybe were using
bank debit cards back into credit cards in terms of the primary
spend behavior," Woolsey said.
Bank of America saw an "elevated level of account closings" in
the fourth quarter, Chief Executive Brian Moynihan said during a
conference call Thursday, citing its $5 debit-card fee plan.
U.S. credit card loans at Bank of America, which has been
selling some unwanted card portfolios, fell 10% from a year ago to
$102.3 billion, which is also down slightly from the third quarter.
However, purchase volume, or the amount of money spent on its U.S.
credit cards, was $50.9 billion, up 3.7% from a year ago and up
4.8% from the third quarter.
Citigroup said Tuesday card loans in its North American consumer
banking segment were $75.9 billion in the fourth quarter, down 2%
from a year ago, but up about 3% from the third quarter.
J.P. Morgan Chase & Co. (JPM) last week said fourth-quarter
card loans totaled $132.3 billion, down 4% from a year ago, but up
4% from the third quarter.
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214;
andrew.r.johnson@dowjones.com
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
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