Consumer Finance

Credit Cards A Bright Spot For Big Banks' Earnings

The first quarter came out to be a bit of a downer for big banks. But amid low interest rates and the net interest margin squeeze that came in tandem with lower earnings results, there was a silver lining.

Echoing “The Graduate” — one word: plastic.

Never mind the energy sector slide, the bad loans accumulating on banks' balance sheets and the lower revenues realized from trading. Credit card businesses, by and large, were doing well, said the heavy hitters. The U.S. consumer still likes to spend and is likely to keep spending. The way they spend also remains important, in terms of using credit.

Financial Times, parsing some of the commentary, recapped that Wells Fargo grew its credit card balances by 10 percent year over year, to the tune of $3.1 billion, and that it would possibly be eyeing an “opportunistic acquisition” that would serve to boost its portfolio. The boosting would not stop there, as U.S. Bancorp is also on the prowl to grow its credit assets by as much as 6 to 7 percent on top of the $20.2 billion already housed within the company.

FT noted that the growth, and the pursuit of growth, has been on the upswing since the 2009 Credit Card Accountability and Disclosure Act was mandated. Balances across the system as a whole are up about 7 percent from the nadir that was seen three years ago when it was $622 billion. The average FICO score stands at about 771 for new accounts, roughly the same from last year. The high credit quality comes against a backdrop where Bank of America cut its card offerings to six down from a crisis high of 18 and also saw a push of 5 million accounts through the past year.

Now, then, comes the securitization — hearkening back to the days before the financial crisis — where products are bundled into investments that are then sold to others. FT reported that the returns of these packages are at new highs. The chargeoffs have been steady and benign, said the publication, both beneficial trends, and even for Capital One, where the profile has leaned toward the subprime borrower, growth in overall loan portfolio has been in the double digits.



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