Credit card loans are arguably the most lucrative of all loans in a bank’s portfolio because of the high interest rates that they demand. Net interest margins on credit cards for banks are normally two to three times than those for other retail loans like auto or student loans. And while the unsecured nature of credit card loans makes them inherently risky, the risk is largely contained for the overall business, as the bank cannot lose more than the credit card limit from a particular customer.
So how do the country’s banking giants stack up against each other when it comes to their credit card portfolio? In this article, which is a part of our continuing series on the comparison of the country’s biggest banking groups, based on their strength and weaknesses in the numerous activities they engage in. We highlight the credit card loans outstanding for the five largest U.S. commercial banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) – along with the credit card-lender-turned-bank Capital One (NYSE:COF).
The table below summarizes the average volume of credit card loans that each of the banks had outstanding over the last eight quarters. The data has been compiled using figures reported by individual banks as a part of their quarterly announcements.
|(in $ millions)||Q1’11||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||FY’11||FY’12|
|Bank of America||137,574||133,423||129,105||118,222||112,485||108,659||106,621||105,930||129,527||108,412|
When it comes to the total credit card loan portfolio, Citigroup takes the top spot among all U.S. banks, with the banking group’s geographical diversification helping it add customers in more countries than any of its competitors. It is also because of this diversification that Citigroup’s credit card portfolio size fluctuated considerably around the $150 billion level over quarters, as changes in foreign exchange rates affect the dollar value of the loans handed out in different countries.
JPMorgan Chase and Bank of America take the 2nd and 3rd spots in the list, with both the giants managing an outstanding card portfolio of more than $100 billion each. As for the mortgage-focused Wells Fargo and U.S. Bancorp, the credit card business is not very high on their priority list, because of which the value of their outstanding credit card loans is but a fraction of the others.
Capital One’s focus on credit cards is very clearly here, with the bank’s acquisition of HSBC’s card business last year boosting card loans held by it from around $60 billion in early 2012 to almost $90 billion by mid-2010. The chart below shows how Capital One’s average credit card portfolio has changed over the past years.
There is an important fact that comes through from the table – credit card portfolio sizes for banks have declined on the whole over recent quarters. This has largely been due to credit card holders clearing their dues. The trend has been evident for quite a few months now – of people clearing any debt overhang and saving up in view of the uncertainty in the U.S. economy of late. Once this fear of the U.S. economy slowing down is alleviated, credit card loan volumes should begin to rise once again.