Q4 2011: U.S. Credit Card Issuer Performance Snapshot

Navigator Edition: February 2012
By: Loren Zadecky

If 2010 was the year for the credit card industry to begin its dig out from under the turmoil of the economic recession, 2011 has proved to be the year of marked improvement and stabilization for the industry. The decline in receivables slowed considerably (and reversed for many issuers), profitability remained stable and attractive, purchase volume continued a strong growth trend, and loss rates fell to pre-recession levels (and in some cases declined by 50% over the prior year).  Below is our commentary of Q4 2011 and considerations for 2012:

  1. Continued Stabilization in Receivables: Q4 2011 signaled the continuing abatement in the decline of card receivables. The year-over-year decline of 260 basis points is the lowest since the first quarter of 2009, and the fourth quarter brought the first meaningful increase on a quarterly growth basis in three years. The positive trends in receivables are likely due to both a shift in issuer strategy towards growth and macroeconomic developments, most notably a decline in the unemployment rate and recent improvements in consumer confidence.
  2. Leveling, but Still Healthy Profitability:  After-tax profitability remained effectively flat (declining 7 basis points) on a year-over-year basis, but it did decline 41 basis points from third quarter levels. Nevertheless, issuer profitability remains attractive relative to previous periods, and the quality of earnings continues to improve as reserve releases play a smaller and smaller part in the profit picture.
  3. Continued Growth in Purchase Volume: Purchase volume increased 8.5% relative to a year ago, reflecting attractive spend levels during the holiday season. Capital One saw the most dramatic year-over-year increase in spend at over 28%, driven partly by the addition of various partnership programs including Kohl’s. On a year-over-year basis, all issuers held their ground or better in the fourth quarter, signaling much anticipated improvement in the overall market fundamentals.
  4. Further Improvement in Loss Rates: Card portfolios realized significant credit quality improvement in 2011, and the fourth quarter was no exception. Loss rates declined 362 basis points on a year-over-year basis and 56 basis points on a quarter-over-quarter basis. However, the five-quarter streak of across-the-board improvement in loss rates came to an end this quarter as two issuers reported slight increases of 15 to 30 basis points over the 3Q 2011 levels. Nonetheless, loss rates remain at very attractive levels. We will be monitoring this metric closely in the coming quarters provided that many issuers have indicated a strategic shift toward receivable growth, which will have downstream impacts on credit quality.


1 Includes income from acquiring business, auto, student lending, and private label receivables and volume.
2 Restated splitting between Citi-branded North American and CitiHoldings Retail Partners from Q1 2008. Purchase volume includes cash advances. All figures for combined portofolios.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards. After-tax ROA includes U.S. consumer, business, and merchant acquiring.
4 U.S. card business, small business, installment loans only. Purchase volume excludes cash advances.
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%.
7 After Tax ROA reflects Payment Services line of business income and average loans.
8 After Tax ROA and purchase volume totals exclude Wells Fargo. Credit-specific income not reported. Reflects any previous quarter restatements and includes addition of US Bank.

Source: Issuer quarterly reports and First Annapolis analysis.

For more information, please contact Loren Zadecky, Senior Consultant specializing in Card Issuing,

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