The country’s biggest card lenders have witnessed a steady decline in the use of credit cards since the downturn of 2008, largely because customers have been wary of the uncertain economic environment that has prevailed and shied away from taking on any debt. To make matters worse, regulatory restrictions imposed on the card business have only magnified the impact of reduced card usage on revenue figures for the lenders. Even then, the country’s biggest credit card lenders have been pushing hard to gain a larger share of the shrinking market by doling out generous offers and freebies, in a bid to attract more customers.
The primary reason for these zealous efforts by the lenders is that credit card loans are arguably the most lucrative of all loans in their portfolio because of the high interest rates that they demand. Net interest margins on credit cards 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 lender cannot lose more than the credit card limit from a particular customer.
In this article, which is a part of our continuing series on the side-by-side comparison of the country’s biggest banking groups 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 $ mil)||Q1’11||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||Q1’13||Q2’13|
|Bank of America||137,574||133,423||129,105||118,222||112,485||108,659||106,621||105,930||102,739||100,335|
The declining trend in the size of credit card loan portfolio for the country’s largest banks becomes evident from the table at the first glance. The trend mirrors the sentiments of customers at large, who have been clearing any debt overhang and saving up in view of the uncertainty in the U.S. economy. Once economic outlook appears more stable, credit card loan volumes should begin to rise once again.
That said, Citigroup remains at the top in the list with its 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 fluctuates considerably, as changes in foreign exchange rates affect the dollar value of the loans handed out in different countries.
While JPMorgan Chase has the second largest global portfolio of credit card loans among the banks mentioned here, the banking giant is the leader in the U.S. market as it has more focused operations in the country as compared to Citigroup. Bank of America comes in third, having to sell-off a chunk of its card portfolio towards in late 2011 as a part of its long-term reorganization plan (see Bank of America Sharpens Focus on US Cards, Raises Cash Reserves with Sale).
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. It must be noted, however, that these two banks bucked the trend displayed by the other giants by broadly growing their card loan portfolio over the period under consideration (albeit by a small value).
Capital One’s focus on credit cards is very clear 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 (see Capital One Rejigs Recently Acquired HSBC Card Unit). The decline over the first half of the year is because of Capital One’s decision to do away with several co-branded and private label card portfolios (see Citi Snaps Up Capital One’s Best Buy Credit Card Portfolio).