Q1 2015 U.S. Banking Review: Outstanding Card Balances

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The first quarter of any year is usually the slowest period for card lenders because of two distinct factors. Firstly, people keep a closer watch on their expenses over the quarter that immediately follows the activity-filled holiday season. This contributes to slower growth in outstanding card balances for lenders over the first three months compared to the last three months of a year. Moreover, as cardholders receive bonuses and tax refunds in the first quarter, they use a bulk of this cash to clear their outstanding debts. This in turn leads to a notable reduction in card loans in the lenders’ portfolios over Q1.

The first quarter of 2015 was no different in this regard, with the size of credit card loans outstanding for the eight largest U.S. credit card lenders – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), U.S. Bancorp (NYSE:USB), American Express (NYSE:AXP), Discover (NYSE:DFS) and Capital One (NYSE:COF) – largely witnessing a downward trend. In this article, we highlight the global card portfolios for each of these banks over the last three years.

See the full Trefis analysis for Capital OneJPMorganWells FargoU.S. BancorpBank of AmericaCitigroupAmerican ExpressDiscover

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Over recent years, a steady improvement in U.S. economic conditions has helped consumers ramp up their discretionary spending considerably from the lows seen in the wake of the economic downturn. Growing optimism about the economic outlook has provided the country’s largest credit card issuers an incentive to push their card offerings harder as they look for ways to nullify the negative impact of increased regulatory oversight on their outstanding loan balances. After all, credit card loans are among the most lucrative of the loans in a bank’s portfolio because of the high interest rates they demand. Net interest margins on credit cards are normally two to three times those of other retail loans like auto or student loans. And while the unsecured nature of credit card loans makes them inherently risky, the high interest rates more than mitigate the impact of charge-offs on the overall portfolio.

The table below summarizes the average volume of credit card loans that each of the card lenders had outstanding over the last nine quarters. The data has been compiled using figures reported by individual banks as a part of their quarterly announcements.

(in $ bil) Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
Citigroup 143.0 140.2 143.8 150.7 142.2 142.6 141.6 146.1 136.8
JPMorgan 123.6 122.9 123.9 124.1 123.3 123.7 126.1 127.4 125.0
Bank of America 102.7 100.3 100.6 101.2 101.1 99.8 100.7 100.3 98.7
Capital One 83.0 77.9 77.7 78.3 77.5 77.0 79.5 81.7 82.6
American Express 62.8 62.5 63.0 64.3 64.4 65.1 66.3 67.6 67.6
Discover 49.3 49.0 50.0 51.0 51.3 51.7 53.1 54.7 54.0
Wells Fargo 24.1 24.0 25.0 25.9 26.3 26.4 27.7 29.5 30.4
U.S. Bancorp 17.4 17.2 17.7 18.1 18.0 18.0 18.3 18.5 18.2
Total 605.9 594.0 601.7 613.5 604.1 604.3 613.3 620.6 613.3

The broad trend that emerges from the data here is that the credit card loan portfolios for these lenders have steadily improved over the last two years. The change seen here is part of a larger trend that mirrors the sentiment of customers at large – who had been clearing any debt overhangs and saving up over the 2010-2012 period in view of the uncertainty in the U.S. economy. Once the economic outlook appeared more stable, credit card loan volumes began to rise again. Also, the seasonal nature of the cards business stands out in the table. Card usage is clearly highest during the holiday season, while card balances shrink over Q1. The only lenders to buck this trend over this quarter were Capital One and Wells Fargo.

That said, Citigroup remains at the top of the list, with its geographic 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. The bank’s decision to sell off its unprofitable retail banking businesses in several countries over recent years has also been a factor behind the overall reduction in card loan volumes over the period, with negative currency movements being responsible for the notable decline in Q1 2015.

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 compared to Citigroup. The diversified banking group cemented its position at the #2 spot after surpassing Bank of America in late 2011, as the latter was forced to sell off a chunk of its card portfolio as a part of its long-term reorganization plan (see Bank of America Sharpens Focus on US Cards, Raises Cash Reserves with Sale).

Capital One reiterated its strong focus in the credit card market in early 2012 with its acquisition of HSBC’s card business. The deal boosted its card balances by almost 50% to almost $90 billion by the end of 2012 (see Capital One Rejigs Recently Acquired HSBC Card Unit). The portfolio shrank over 2013, however, as Capital One decided 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 allowed some card loans which were not relevant to its long term growth plan to run off. Things have improved over the last few quarters, though, with loans showing signs of steady organic growth.

In terms of total outstanding card loans, American Express and Discover take the 5th and 6th spots in the list. Although one would expect both of them to be higher on the list given that they run their own global card payment systems, it must be remembered that a bulk of their cards are actually offered by other third-party lenders worldwide. Accordingly, their actual card portfolios as issuers are smaller than those for the banks which also issue the more prevalent Visa and MasterCard-branded cards, though they have shown a steady increase in card balances since 2010.

As for Wells Fargo and U.S. Bancorp, their credit card businesses have not been a high priority in the past, because of which the size of their outstanding credit card loans are a fraction of the others. However, both banks are looking to change this over the coming years, and have undertaken several steps to increase their share of the market in the future.

The chart below represents the total outstanding card balances for these banks for each quarter since Q1 2011, and allows for an easier understanding of the trend in card loans over the period.

CardLoans Line 15Q1

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