Are Default Rates At Their Peak?
Even as credit card companies and other lenders continue to get hit by bad payment trends as consumers continue to struggle with their finances and with the unemployment rate that is hovering at 10%, there is now some hope that the worst of the credit card crisis may already be behind them. With delinquency figures showing marked signs of improvement, credit card defaults may be fewer in the coming months. This, even as the net charge-off rates went up to 10.5% for the month of January.
August of 2009 saw the highest charge off rate; 10.8%. January’s charge off rate is not so far off. However, delinquency rates dropped to 5.8% along with the delinquency dollar amount. Credit card companies predict future payment defaults according to the present delinquency rates and, with the rates dropping significantly, there may be fewer charge offs for credit card companies ahead.
Regarding these developments, Donald Fandetti, analyst for Citigroup wrote that they expect “an industry cycle peak” as long as the unemployment rate stays relatively stable and there are no spikes in bankruptcy. Citigroup, says Fandetti, is maintaining a positive view on card issuer stocks. The company recently did a buy on Capital One Financial and American Express stocks. The constructive view being maintained by Citibank leans heavily on the latest delinquency data.
Bank of America, the country’s biggest lender, reported a decline in both their delinquency and net charge-off rates. Late payments for the company dropped to their lowest level within a year in January; 7.4%. Uncollectible loan write offs also declined to 13.3% from the previous figure of 13.5%.
Taking second place in the top spot for credit card companies seeing improved delinquency and charge off rates, Discover Financial reported a decrease in their defaults but a small increase in their 30-day delinquency rates, rising to 5.6% from the previous 5.5%.
Capital One Financial takes third place behind Bank of America and Discover Financial in the trend of dropping defaults for January. The company’s uncollectible loan write offs went up by 10.4% in January, an increase from the 10.1% rate seen by the company last December. According to Fandetti, the pressure being brought on the loan balance of Capital One by the new Credit Card Accountability, Responsibility and Disclosure Act is cause for concern.
The continued worries over the ability of Capital One to weather the blow of the Credit CARD act resulted in the company losing some points during trading even as Bank of America and discover saw some gains.
