Several Credit Card Companies See Default Rate Fall - Credit Market * US * News * Story

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Several Credit Card Companies See Default Rate Fall

Published: Monday, 16 Nov 2009 | 11:09 AM ET

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By: Reuters

U.S. credit card defaults fell more than expected in October, but delinquencies rose in a sign that consumers remain under stress and the sector can expect more pain ahead, credit card companies reported on Monday.

credit cards

The drop in defaults reflects a decline in late payments earlier this year thanks to tax refunds and economic stimulus actions.

But delinquencies, an indicator of future credit losses, rose across the board as more Americans lost their jobs. Capital One [COF Loading... () ] and JPMorgan Chase [JPM Loading... () ] reported the biggest increases in late payments.

"We view this month's numbers as a sign that credit could be coming under greater stress," Barclays Capital analyst Bruce Harting wrote in a note to clients.

Credit card charge-offs and delinquencies usually track unemployment, which rose to a 26-year high of 10.2 percent in October.

Bank of America [BAC Loading... () ], the largest U.S. bank, said in a regulatory filing that its charge-off rate — loans the company does not expect to be repaid — fell to 13.22 percent in October from 14.25 percent in September.

Despite the decline in charge-offs, Bank of America is still the credit card issuer with higher defaults and delinquencies.

JPMorgan, the largest issuer of Visa-branded credit cards [V Loading... () ], said its charge-off rate declined to 8.02 percent from 8.12 percent, while Capital One's fell to 9.04 percent from 9.77 percent.

Discover Financial Services [DFS Loading... () ] said its charge-off rate declined to 8.54 percent from 8.69 percent.

"We believe that credit losses will rise in the coming months and should remain elevated in 2010, thereby pressuring earnings," Credit Suisse analyst Moshe Orenbuch wrote in a note to clients.

Delinquencies Suggest More Trouble Ahead

Capital One said delinquencies rose to 5.72 percent in October from 5.38 percent in September, while JPMorgan's late payments rose to 4.95 percent from 4.69 percent.

Last week, Capital One Chief Executive Richard Fairbank forecast that charge-offs will keep rising and remain elevated throughout 2010, hurt by weakness in the housing market and job losses.