Regulatory filings by major credit card companies for the month of April have shown a declining trend in credit card defaults. On Monday, five of the nation's top six credit card companies reported a decline in card defaults.
While JPMorgan Chase & Co. (JPM), American Express Company (AXP), Discover Financial Services (DFS), Citigroup Inc. (C) and Capital One Financial Corp. (COF) recorded further drop in their respective credit card defaults, Bank of America Corporation (BAC) reported a surge for the same.
Card companies usually write off the loans that are 180 days past due and assume them to be uncollectible. JPMorgan reported a decrease in net charges-off (NCOs) to 5.60% of its total loan balance in April compared with 6.02% in March. This is the lowest NCO rate for the company since December 2008 and is also substantially lower than the peak of 10.91% recorded in January 2010.
Similarly, on an annualized basis, Capital One’s NCOs fell 90 basis points from the prior month to 4.97% in April. This is the first time that the company’s NCOs stood below 5% since late 2007. The NCOs of Capital One had surged to 10.87% in April 2010 before the downward trend started.
However, for BofA, on an annualized basis, NCOs went up to 8.25% in April as against 8.18% in March. Nevertheless, this was significantly below 14.53% reported by the company in August 2009.
Delinquency rate, indicating the future rate of default, plunged for BofA, JPMorgan and Capital One in April 2011. BofA’s delinquency rate for 30 days or more (on an annualized basis) declined to 4.52% (lowest since October 2006) versus 4.82% in March 2011. For JPMorgan, delinquency rate for 30 days or more (on an annualized basis) inched down from 3.08% in March to 2.86%, marking JPMorgan’s lowest delinquency rate since August 2007.
Similarly, delinquency rate for 30 days or more (on an annualized basis) for Capital One dropped to 3.41% from 3.59% in March. The company’s delinquency rate for 30 days or more had peaked to 5.8% in January 2009.
Additionally, delinquency rates also declined for American Express, Discover Financial and Citigroup.
One of the reasons for declining default rates is that the defaulting card holders are now not being able to get cards with large credit limits. The declining default trend is also reflective of the card owners’ improved financial condition and ability to pay off their debts. This clearly indicates that the economy is slowly stabilizing.
Currently, Discover Financial retains a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating; Capital One retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating; JPMorgan, Citigroup and American Express retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating; and BofA retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
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