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The U.S. credit card charge-off rate rose to a record high in June as more Americans lost their jobs, Moody's Investors Service said Wednesday.
The Moody's credit card charge-off index—which measures credit card loans that banks do not expect to be repaid—rose to 10.76 percent in June from 10.62 percent in May.
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However, the index showed the slowest rate of increase in six months, with companies such as American Express, the largest U.S. credit card company by sales, posting declines in defaults.
"We call for a recovery of the credit card sector to begin once industry average charge-offs peak in mid-2010 between 12 percent and 13 percent,'' Moody's said in a report.
Credit card losses usually follow the trend of unemployment, which rose in June to 9.5 percent, the highest level in nearly 26 years. Moody's estimated unemployment will peak next year at 10 percent to 10.5 percent .
The Moody's index showed credit card delinquencies—payments more than 30 days late—fell for the third straight month, to 5.81 in June from 5.97 percent in May.
However, the agency said this was due to a seasonal trend, as consumers used tax refunds to pay their debts. It forecast delinquencies will resume their upward trend.
"If delinquencies continue to improve beyond the typical seasonal pattern, then a similar trend in charge-offs may follow,'' Moody's said. "Nevertheless, we continue to expect increasing industrywide delinquencies to resume through the second half of the year—an assumption consistent with our forecast for a rising unemployment rate.''
With industrywide credit card losses surpassing 10 percent this year, loan losses could top $70 billion, according to analysts' estimates.
Data released by companies earlier this month based on the performance of credit card loans that were securitized showed defaults felt not only at American Express [AXP
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], but also at JPMorgan Chase [JPM
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]—the largest U.S. issuer of Visa [V
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] branded credit cards—and Discover Financial Services [DFS
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].
Charge-offs were stable at Citigroup [C
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], while Bank of America's [BAC
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] lending portfolio showed a steep deterioration for a second straight month.
Both Citigroup and Bank of America hold the highest exposure to riskier credit card borrowers.
Data is a real-time snapshot *Data is delayed at least 15 minutes