NEW YORK, April 18 2010 (Reuters) – Consumers are starting to fall behind on their credit card and loan payments as the economy softens, although consumer ratings are still moderate.
Bank of America Corp ( BAC.N ), JPMorgan Chase & Co ( JPM.N ), Wells Fargo & Co ( WFC.N ) and Citigroup Inc ( CN ) beat analysts’ forecasts as the lending giants cut interest rates. But industry bosses have warned that strength will continue this year as the recession fades and customer churn rises.
“We’ve seen some of the trends in consumer financial health from a year ago gradually weaken,” Wells Fargo Chief Financial Officer Mike Santomassimo said on a conference call Friday to discuss its first-quarter results.
The bank’s chief executive, Charlie Scharf, said that while delinquencies and net charge-offs – the amount owed to banks that cannot be repaid – rose more slowly than expected, consumers and businesses remained generally strong.
The company set aside $1.2 billion in the first quarter to cover potentially impaired loans.
Citigroup made large provisions for credit losses even as it brought in more revenue from customers’ interest payments on credit cards.
The delinquency rate is rising as expected but still stands below normal levels in the bank’s “very high quality” loan portfolio, said Mark Mason, the bank’s chief financial officer.
“We’ve tightened credit standards, particularly due to market conditions in cards, and we’ll continue to adjust our credit system based on what we’re seeing based on macroeconomic trends,” Mason said.
Delinquency rates will likely return to “normal” levels of 3% to 3.5% by early 2024 and 5% to 5.5% for retail services, Mason said. The current delinquency rate is 2.8% for branded cards and 4% for retail, Citi said in its earnings release.
Bank of America made a $931 million provision for credit losses in the quarter, up from $30 million a year earlier, but below the fourth quarter’s $1.1 billion provision. Total loan disbursements reached $807 million, up from the previous quarter but still below pre-pandemic levels, the bank said in its earnings release.
Bank of America chief financial officer Alastair Borthwick told reporters: “The consumer credit quality is in good shape by any historical standards. Employment is good, wages are good, and we haven’t seen any cracks in that portfolio yet.”
Some JPMorgan clients have started to fall behind on payments, but delinquency levels are still moderate, said Jeremy Barnum, chief financial officer at the largest US lender.
“We’re not seeing much to indicate a problem,” he said.
The bank increased its provision for credit losses in the first quarter to $2.3 billion from a year earlier, showing a net charge of $1.1 billion.
UBS analysts led by Erika Najarian predicted. Still, he said, loan defaults are forecast to remain “well below the highs seen in the previous recession.”
As large and mid-sized lenders become more conservative in their underwriting, net charge-off relief is likely to peak in several quarters, Morgan Stanley analyst Betty Grasek wrote. “This means slower credit growth” in 2023 and 2024, she wrote.
American Express said in a filing on Tuesday that net underwriting fees on card loans rose slightly to 1.7% in March from 1.4% in late February. Default rates were stable from February to March.
Reporting by Tatiana Bowser; Additional reporting by Saeed Azhar; Editing by Lananh Nguyen and Nick Zieminski
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