Over the last couple of years, people have been quite wary of their discretionary spending in view of the uncertain economic environment. This has manifested itself quite clearly through a steady decline in the card lending portfolio for the country’s largest banks. Increased regulatory oversight on the industry and broad changes to their own business model in a quest for better profitability have also contributed to shrinking card loan balances at these banking giants.
But there can also be no denying the fact that the country’s biggest credit card lenders have also 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 efforts 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, we highlight the credit card loans outstanding for the largest U.S. commercial banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), U.S. Bancorp (NYSE:USB) and 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 ten quarters. The data has been compiled using figures reported by individual banks as a part of their quarterly announcements.
|(in $ mil)||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||Q1’13||Q2’13||Q3’13|
|Bank of America||133,423||129,105||118,222||112,485||108,659||106,621||105,930||102,739||100,335||100,638|
The largely 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 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 has not been very high on their priority list in the past, because of which the value of their outstanding credit card loans is a fraction of the others. But both these banks are looking to change this over the coming years, and have signed agreements with American Express (NYSE:AXP) to begin issuing AmEx-branded cards next year (see U.S. Bancorp’s Partnership With AmEx Should Unlock Value For Both Companies). Wells Fargo’s top management has also detailed more aggressive growth plans for the bank’s credit card arm over recent months.
Finally, coming to the credit card-lender-turned-bank Capital One, it is clear that the cards business remains an area of focus for the bank 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 (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), and also because the bank has consciously decided to run-off some card loans which are not relevant to its long term growth plan.