Releases of allowances for bad credit card loans continued to plump banks' bottom lines in recent earnings reports, but loss rates look set to bounce off record lows in the first quarter.
Charge-off rates, or the annualized amount of debt written off as uncollectible as a percentage of outstanding receivables, fell in December from the previous month at four of the six largest issuers, according to disclosures filed on Jan. 17.
That improvement ran counter to the typical seasonal increase. Meanwhile, the drop in delinquency percentages was in line with the seasonal pattern. Increases in delinquency percentages last fall portend higher write-off rates early this year, however.
Average loss rates in the first quarter look likely to register their first sequential increase in a year and a half at American Express Co., Bank of America Corp. and JPMorgan Chase & Co. That's based on the recent pace at which accounts 30 days to 60 days past due have translated into charge-offs five months hence.
The charge-off rate for securitized receivables at Capital One Financial Corp. also should increase in the first quarter after posting a slight uptick in the fourth quarter.
Meanwhile, delinquency trends at Citigroup Inc. and Discover Financial Services appear to position the companies for further declines in charge-off rates in the first three months.
In its earnings release last week, Chase reported that its credit card charge-off rate (including receivables that do not back bonds) fell 41 basis points from the preceding period and 356 basis points from a year earlier to 4.29% in the fourth quarter.
That was the lowest level in more than three years and below what its chief financial officer, Douglas Braunstein, called the company's "through-the-cycle target." He forecast that the charge-off rate would increase by about 20 basis points this quarter, though he said that would be a function of seasonality. (Receivables typically decline in the first quarter after the holiday shopping season, reducing the denominator for credit ratios.)
The generally favorable credit trends led Chase to release another $500 million it had set aside to cover bad card loans. That was the same amount by which it had reduced its card allowance in the third quarter but lower than the range of $1 billion to $2 billion of quarterly releases that had prevailed since the beginning of 2010.
"In credit cards we are near the end of reserve release," said Chase's chief executive, Jamie Dimon. "Credit is very good and hopefully it will stay good. It may get a little better, but I think we are near the end."
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