Q1 2013: U.S. Credit Card Issuer Performance Snapshot

Navigator Edition: April 2013
By: James Watts

The nation’s largest credit card issuers reported strong profits in the first quarter of 2013, but the lack of asset and revenue growth is a common, recurring theme while purchase volumes increased compared to the prior year. Many credit card issuers continue to post receivables declines as loan demand is clearly soft and issuers remain cautious at marketing to the lower ends of the risk spectrum.

  1. Issuers Continue to Struggle for Growth: Although the protracted decline in receivables appears to be slowing, consistent with last quarter, industry receivables were down by 5.3% quarter-over-quarter and by 1.7% year-over-year. Quarterly declines were largely driven by the nation’s four largest issuers1. On a positive note, American Express, Discover, and Wells Fargo all posted year-over-year increases for the sixth consecutive quarter as they have separated themselves from the pack in terms of loan growth.
  2. Attractive Returns: Issuer returns increased on both a quarterly and annual basis by 78 basis points and 16 basis points respectively. Reserve releases are slowing, but continue to enhance overall returns given the rather benign loss environment.
  3. Continued Purchase Volume Growth: In our peer group, purchase volume increased by 5.8% on a year-over-year basis and, consistent with seasonal trends, decreased by 9.0% quarter-over-quarter. Consistent with last quarter, Chase and American Express posted the largest year-over-year purchase volume increases (excluding Capital One, whose reported increases are driven by the HSBC transaction), while Citi posted a year-over-year decrease. Industry purchase volumes are now approaching inflation adjusted pre-recession levels as issuers have moved upmarket to engage transactors.
  4. Loss Rates Plateau: Loss rates appear to have reached a plateau as figures were once again nearly flat on a quarter-over-quarter basis. Annual loss rate improvements followed a similar trend as issuers posted an 88 basis point improvement year-over-year. With loss rates low and continued soft demand for loans, it will be interesting to monitor competitive moves particularly any increase in the use of offers targeting revolvers (e.g., balance transfers and promotional rates) and whether issuers move back into sub-prime in any meaningful way.

1 For purposes of our analysis of receivables growth, we include $7 billion in receivables associated with the Best Buy portfolio in Capital One’s figure (however, the Best Buy book has been classified as held for sale by Capital One)

Source: Issuer quarterly reports and First Annapolis analysis.

1 Includes income from acquiring business and private label receivables and volume. Restated from previous quarter which included income from auto and student lending.
2 Earnings restated in 1Q 2013, historical figures adjusted to conform to new reporting methodology. Purchase volume includes cash advances. Includes Citi-branded and Retail Partner Cards.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards. After-tax ROA restated to include “Card Services” only; U.S. consumer and business services. Period amounts have been reclassified to conform to current period presentation.
4 U.S. card business, small business, installment loans only. Purchase volume excludes cash advances. Results include the impact of May 1, 2012 closing of HSBC transaction resulting in approx $28.2 billion in receivables at closing.
5 Receivables and charge-offs are for U.S. Cardmember Lending business only. Purchase volume is for U.S. Card Services segment, consumer and small business.
6 Includes  U.S. domestic receivables and purchase volumes only. ROA includes merchant services and implied U.S. Cards tax rate of ~40%. Numbers will not tie to previous publications in light of a change in the Discover’s fiscal calendar, with the fiscal year now ending on Dec. 31 (vs. Nov. 30 in previous reporting)
7 Wells Fargo began reporting purchase volume in 4Q 2013. 1Q12 figure an estimate based on an average turn rate of 2.0x.
8 After Tax ROA reflects Payment Services line of business income and average loans.
9 After Tax ROA excludes Wells Fargo. Credit specific income not reported. Reflects any previous quarter restatements and includes addition of  U.S. Bank.
10 Sum / Wtd Avg. “change” calculation excludes Capital One.

For more information, please contact James Watts, Senior Consultant specializing in Credit Card Issuing, james.watts@firstannapolis.com.

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