(Updates with Citigroup's monthly report on credit-card loan performance, and adds closing share prices.)
By Aparajita Saha-Bubna
Of DOW JONES NEWSWIRES
Data released Thursday by major U.S. credit-card issuers reinforce the challenges facing lenders.
The latest numbers indicate that consumers continue to struggle amid high joblessness, as delinquency rates, a key gauge of future losses, continue to rise for most card issuers, and losses stemming from souring card loans remain elevated.
The data suggest the U.S. is unlikely to experience a smooth economic turnaround. Moreover, seasonal trends pose additional risks: Strapped consumers, heading into the holiday season, may increase spending on their plastic, which could lead them to fall even further behind on payments.
"The companies aren't out of the woods yet," says Scott Valentin, an analyst at FBR Capital Markets, "but they are now better able to forecast credit trends, which are more in line with seasonal trends."
The monthly report cards on the performance of credit-card loans, including those packaged into bonds, come amid heightened scrutiny of credit as investors, analysts and company executives sift through the numbers for signs of an economic recovery.
Issuers of plastic, including Capital One Financial Corp. (COF), JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Discover Financial Services Inc. (DFS) and American Express Co. (AXP) are also coping with sweeping legislation restricting certain fees and rate hikes that will bite into income.
To fight the losses, card issuers are scaling back on credit and getting tougher about lending standards; whittling down the size of their credit-card loans book can also magnify the extent of credit deterioration, as losses are spread over a smaller portfolio.
Card issuer-turned-bank Capital One said charge-offs - card loans deemed uncollectible - increased to 9.77% in September from 9.32% in August in its U.S. credit-card business. Cardholders at least 30 days behind payments rose to 5.38% last month from 5.09% in August.
The charge-off rate reported by Capital One and its peers is annualized. The delinquency rate, a key gauge of future losses, is important because higher delinquencies force issuers to squirrel away capital to reserve for potential losses; ultimately, companies must write off loans if customers can't pay up.
Discover said the 30-day delinquency rate on credit-card loans that have been packaged into bonds rose to 5.57% in September, up from 5.35% in August. But, at 8.69%, it wrote off less in card loans last month, compared with 9.16% in August.
Discover and its bigger rival, American Express, both issue cards and process transactions.
Breaking from the pack, AmEx continued its streak of reporting relatively healthier credit trends. The company said U.S. borrowers at least a month behind their card payments stood at 4.1% in September, unchanged from August. For the quarter ended Sept. 30, the 30-day delinquency rate was 4.1%, according to preliminary data, down from 4.4% in the second quarter.
AmEx wrote off 8.4% of its U.S. card loans, including those packaged into bonds, last month. In August, the company wrote off 9% of its card loans. For the third quarter, the company wrote off 8.9% of its U.S. card loans, according to preliminary data, down from 10% in the second quarter. AmEx offers charge cards requiring a monthly payoff and credit cards on which customers can carry a balance.
Bank of America, at 14.25%, had the highest write-off rate in September among the card issuers that released data Thursday. In August, the card issuer wrote off 14.54% of card loans, also the highest rate at the time among its peers.
Citigroup wrote off 10.15% of card loans in September (its numbers are as of Sept. 25), down from 12.14% in August. For the two months, Citigroup had the second-highest write-off rate, behind Bank of America.
Chase, a unit of JPMorgan Chase, said its credit-card charge-off rate fell to 8.12% last month, from 8.73% in August.
"Card is having a tough time," Chief Executive Jamie Dimon said of JPMorgan's credit-card business during a conference call Wednesday with investors to discuss the company's third-quarter results.
Officials at these companies were either unavailable for comment or declined to comment.
Shares of American Express ended 1.28% higher at $35.54. Shares of Capital One closed off 3.13%, and Discover stock ended down 0.98%. Bank of America shares finished down 2.64%, and JPMorgan Chase closed flat at $47.16. Citigroup shares lost 5%.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com
(Tess Stynes in New York contributed to this article.)