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Most U.S. credit card companies reported defaults fell in September, as lenders tightened credit and consumers used tax refunds and other economic stimulus proceeds to pay down debts.
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However, delinquencies, an indicator of future credit losses, climbed at all major credit card issuers, suggesting bad loans will rise in coming months.
Credit card chargeoffs, loans the companies do not expect to be repaid, usually track unemployment, which rose to a 26-year high of 9.8 percent in September.
The jobless rate is expected to peak at more than 10 percent by year-end.
"We continue to expect delinquencies to rise this year and next year. We have seen some improvement over the summer which was driven in our view by some seasonal factors," said Jason Arnold, an analyst at RBC Capital Markets. "Chargeoffs in general will continue to rise in coming months."
Bank of America said in a regulatory filing its charge off-rate fell to 14.25 percent in September from 14.54 percent in August. Still, the largest U.S. bank remains the worst performer among the biggest credit card issuers.
JPMorgan Chase the largest issuer of Visa-branded credit cards, said its charge-off rate declined to 8.12 percent from 8.73 percent, while smaller Discover Financial Services said its rate fell to 8.69 percent from 9.16 percent.
However, Capital One said its charge-off rate for U.S. credit cards rose to 9.77 percent in September from 9.32 percent in August.
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Capital One shares were down 5.8 percent at $37.07 in late morning trading, the biggest decline of any large bank.
American Express, the biggest U.S. credit card company by purchasing volume, and Citigroup,the largest issuer of MasterCard-branded credit cards, plan to report the monthly performance of their credit card portfolios later on Thursday.
Trend Seems Unsustainable
Credit card delinquencies, which earlier this year declined helped by tax refunds, rose across the board in September, as Americans lost hundreds of thousands of jobs.
Bank of America said late payments rose to 7.53 percent in September from 7.47 percent in August, while JPMorgan said delinquencies increased to 4.69 percent from 4.48 percent.
Discover delinquencies inched up to 5.57 percent from 5.35 percent, and Capital One's late payments went up to 5.38 percent from 5.09 percent.
Credit Suisse analyst Moshe Orenbuch believes loss rates will not improve for at least a year.
"Call us old-fashioned, but it seems that if significantly more people are out of work (and that number is climbing at an annual rate of more than 3 million) that the risk of higher credit losses is increasing," Orenbuch wrote in a note to clients.
Orenbuch said he expected credit card losses to peak in the fourth quarter and remain elevated in 2010. As credit card losses rose to record highs in recent months, credit card companies closed millions of accounts, trimmed lending limits and slashed rewards.
Lenders are also raising fees and interest rates ahead of a new law that increases protection for consumers. The law is expected to shrink the industry and limit subprime borrowers' access to plastic money.
Shares of Bank of America were down 3 percent at $18.03, JPMorgan was down 1 percent at $46.69, Discover declined 1.5 percent to $16.01.
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