Q2 2015 U.S. Banking Review: Outstanding Card Balances

+0.47%
Upside
145
Market
145
Trefis
COF: Capital One Financial logo
COF
Capital One Financial

Card lenders across the country reported a notable increase in their credit card balances for the second quarter of the year, as growing optimism about the economic outlook led to continued growth in discretionary spending. While there has been a steady increase in card usage over the last couple of years, the seasonal nature of the industry resulted in a reduction in total outstanding card balances for Q1. The trend reversed in Q2, with data compiled by the Federal Reserve showing that U.S. commercial banks had a record $630 billion in total credit card balances at the end of the period. ((Selected Assets and Liabilities of Commercial Banks in the United States, Federal Reserve Website)) With the Fed unlikely to hike benchmark interest rates this year, we expect card balance figures to continue to swell for the rest of 2015 – especially in Q4 when the holiday season gives a significant boost to the level of card usage.

In this article, we highlight the trends in the global card portfolios 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) – over the last four years.

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

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Credit card loans are among the most lucrative 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 such as 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. This would explain the considerable effort put in by the country’s largest banks to grow in the industry – a move that they can leverage for higher profits once the interest rate environment improves.

The table below summarizes the average volume of credit card loans that each of the card lenders 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 $ bil) Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Citigroup 143.0 140.2 143.8 150.7 142.2 142.6 141.6 146.1 136.8 134.4
JPMorgan 123.6 122.9 123.9 124.1 123.3 123.7 126.1 127.4 125.0 124.5
Bank of America 102.7 100.3 100.6 101.2 101.1 99.8 100.7 100.3 98.7 97.5
Capital One 83.0 77.9 77.7 78.3 77.5 77.0 79.5 81.7 82.6 83.9
American Express 62.8 62.5 63.0 64.3 64.4 65.1 66.3 67.6 67.6 67.9
Discover 49.3 49.0 50.0 51.0 51.3 51.7 53.1 54.7 54.0 54.0
Wells Fargo 24.1 24.0 25.0 25.9 26.3 26.4 27.7 29.5 30.4 30.4
U.S. Bancorp 17.4 17.2 17.7 18.1 18.0 18.0 18.3 18.5 18.2 18.0
Total 605.9 594.0 601.7 613.5 604.1 604.3 613.3 620.6 613.3 610.5

Notably, the largest U.S. card lenders witnessed a quarter-on-quarter reduction in total card balances over Q2 2015. This is in contrast to the sequential increase in card balances for all U.S. commercial banks from $621 billion in Q1 2015 to $627 billion in Q2 2015 as presented by Fed data. [1] Although unfavorable currency movements were a contributing factor for the larger banks – especially Citigroup – the fact that primarily U.S.-focused card lenders like Bank of America, Wells Fargo and U.S. Bancorp also reported a reduction in card balances in Q2 2015 would imply that the largest banks lost some of their market share in the country to smaller players. Capital One stands out here as the only card lender to report an increase in its card balance compared to Q1 2015.

It should be noted that JPMorgan figures at #2 on the list despite being the largest card lender in the U.S. because of Citigroup’s significant geographic diversification – which helps the latter add customers in more countries than any of its competitors. American Express and Discover are also low on the list, as a bulk of their cards are actually offered by other third-party lenders worldwide. Their actual card portfolios as issuers are smaller than those for the banks which also issue the more prevalent Visa and MasterCard-branded cards.

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 15Q2

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