Forecasts from Credit Suisse Group AG predicts that losses in the credit industry will continue to rise for at least one more year as September sees more credit card holders falling behind on their payments. According to major U.S. Credit card companies Bank of America, Citigroup Inc. and JPMorgan Chase & Co., credit card holders are still struggling with meeting their credit card payments.
Along with Discover Financial Services and American Express Co., these three banks reported that write off rates, debts that credit card companies give up as unpayable, fell for the month of September. However, loans that are 30 days overdue have surged which may signal a future of defaults. This could mean that the credit card industry may be seeing record losses in the future. To note, loans that have not been paid after 180 days are written off by credit card companies.
Of these major credit card companies, only American Express reported no increase in both delinquencies and defaults. At the opposite end, Capital One Financial Corp was the only credit card company to report both an increase in losses and in late credit card payments.
This month, JPMorgan reported an increase of 4.69 percent for loans that are 30 days overdue from August's 4.48 percent. Bank of America reported in their federal filings that 30 day overdue loans were at 7.53 percent for September, rising from 7.47 percent in August. For Citigroup, loans that are 35 days late, at least, went up to 5.5 percent for last month compared to 5.38 percent for August. Discover also saw an increase to 5.57 percent in September from 5.35 percent in August for late payments. Capital One saw delinquent loans rise to 5.38 percent last month from August's 5.09 percent.
Historically, it has been shown that the rate of credit card defaults tracks the unemployment rate of the country. In September, the unemployment rate in the United States rose to 9.8 percent. This is the highest it has been since the year 1983. To note, the recorded defaults rate from August of last year, 2008, was at 6.82 percent. At the time, the unemployment rate was at 6.2 percent
According to Moshe Orenbuch who serves as an analyst on Credit Suisse, reports that the stabilization of consumer credit is on the way is highly doubtful. Orenbuch wrote in a research note that the combination of increasing bankruptcies and continuing loss in employment means that credit loss improvements is still more than a year away.