Credit Card Companies Still In Trouble

As 2010 begins, data released by major credit card companies in the United States shows that recovery is still a long way away.

The latest credit card loan performance numbers released by major credit card companies Discover Financial Services, Capital One Financial Corp., Bank of America Corp. and J.P. Morgan Chase & Co. showed that these credit card companies are still under stress from high credit card loan losses. This means that the economy is still under heavy stress and economic stability is still a few months ahead as consumers remain financially troubled and pressured by continuing high unemployment rate.

There is an encouraging sign, however. Among the credit card companies and firms in the U.S., delinquency rates have begun to slow down. Delinquency rates are important figures for industry watchers as they gauge probable future losses among credit card companies as well as firms. Generally, a higher delinquency rate predicts an increase in charge offs, loans that credit card companies write off as losses. This is because late credit card payments are an indication of financial instability among credit card holders and if this trend continues, card holders would be unable to recover. These delinquent credit card payments can progress to nonpayment of the credit card debt. If, after a period of time, usually six months, a credit card debt continues to be unpaid, it becomes a charge off for the credit card company.

The slowing down of delinquency rates among credit card companies may be an indication that charge offs may peak by the first half of 2010. According to FBR Capital Markets analyst, Scott Valentin, the industry may be stabilizing which, he says, is a “first step toward improvement.” Valentin says that if early stage delinquencies continue to drop, charge off rates in the industry should see a peak in a short while. Specifically, analysts expect charge off rates to see a peak either by late spring or during early summer.

Although a peak may be a possibility in a few months’ time, December levels are still considerably high which means that the turnaround of the U.S. economy is still not coming for a while. There is also the seasonal factor. Coming out of a holiday season, consumers may have overstepped their budget boundaries and gotten themselves into credit card debt trouble leading to delayed payments. The Credit CARD Act is also going to be activating next month and this new legislation is likely going to take a considerable chunk out of the profits of credit card companies.