JPMorgan Chase & Co.'s credit card unit is evolving into a leaner, more upscale transaction machine.
Pulling from significantly fewer credit card accounts than it had a year earlier, Chase posted a 12% overall increase in credit card sales volume for quarter ended March 31 as it focused on higher-spending, more affluent customers.
Certain of Chase's upscale credit card products drove even higher sales volume growth, Doug Braunstein, Chase's chief financial officer, told analysts during a conference call April 13 to discuss quarterly earnings.
"If you exclude the sale of Kohl's, sales were actually up 15% for the system, and the new product sales growth for our Freedom, Sapphire, and Ink products were actually in excess of that growth rate," Braunstein said.
Chase had a total of 64.4 million open accounts at the end of the quarter, down 29.9% from 91.9 million a year earlier. Capital One Financial Corp. absorbed 20 million of those accounts when it reached an agreement to acquire the Kohl's Corp. private-label credit card operation from Chase in 2010 (see story). The companies completed the transfer during the second quarter of 2011.
But Chase also opened fewer new accounts during the recent quarter, approving only 1.7 million new accounts, down 34.6% from 2.6 million a year earlier.
The issuer's newer accounts apparently are skewing mainly toward upscale segments. In recent months Chase heavied up advertising and promotions for its premium-level credit cards, including Sapphire (see story).
In late March, Chase introduced one of its priciest travel-rewards cards yet, the $395-a-year MileagePlus Club Visa card (see story).
Other levers, including a higher provision for credit losses driven by a lower reduction in the allowance for loan losses from a year earlier, caused a drop in profit for Chase's Card Services and Auto unit during the quarter.
The unit reported net income of $1.12 billion for the period, down 25.3% from $1.5 billion during the same period last year. Revenues were down 2.1%, to $4.7 billion from $4.8 billion, caused by lower average card balance and narrower loan spreads, partially offset by lower revenue reversals associated with lower net charge-offs, Chase said in its earnings release.
The provision for credit losses rose 109%, to $738 million from $353 million. Noninterest expense was up 5.7%, to $2.03 billion from $1.92 billion.
The net charge-off rate on credit cards fell 257 basis points to 4.4% from 6.97% a year earlier.
Credit card average loans for the quarter were $127.6 billion, down $4.9 billion or 4% from a year earlier.
Merchant-processing volume was up 22%, to $152.8 billion; total transactions processed were 6.8 billion, up 21%, Chase said.
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