Big Banks Keep Pushing Credit Cards to Consumers

Top 100 banks enjoy low delinquency so they are hitting the gas on consumer credit cards

September 12, 2022
Big Banks Keep Pushing Credit Cards to Consumers

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Big Banks Keep Pushing Credit Cards to Consumers

Top 100 Banks Have Lower Delinquency Rates so They’re Hitting the Gas on Consumer Debt

Auto Loan Delinquencies Loom

Life’s inevitabilities in the fall include a deluge of political ads, football broadcasts from Thursday thru Monday, and ubiquitous credit card pitches from Samuel L. Jackson.

Banks everywhere are ratcheting up their credit card marketing activities greatly increasing marketing expenses. Credit-card issuers are staying aggressive and shrugging off potential liquidity issues from consumers, despite rising interest rates and potential recession. Any slowdowns will not adversely affect customer liquidity enough that they won’t be willing to increase their credit-card balances.

American Express, Capital One and Discover announced in the second quarter that credit-card account openings were surging as was credit card spending. At JP Morgan Chase, credit card purchases totaled more than $270 billion, the highest amount dating to 2004 and a third above the fourth quarter of 2019 before COVID hit.

Capital One has signed a new $125 million sponsorship deal with Major League Baseball meaning still more ads will be coming from Mr. Jackson and others throughout the baseball playoffs.

For large banks, increases in interest rates promise billions in new revenue. EPS for big banks could be on average 20% to near 40% higher if they added gains from significant rate increases.

In 2021, Wells Fargo and Bank of America, both loaded with U.S. deposits, said they could earn more than $7 billion in additional revenue if there were a 1 percentage point jump in both short and long-term rates at the same time, according to public disclosures.

Banks are sitting on piles of cash that aren’t getting returns and they are not yet willing to redeploy that money on securities in a down market. Banks are winning with rate increases. Banks don’t generally increase payments to depositors much, as they bet either relationships, habit or customers’ unwillingness to move for slightly larger interest rates willprevent attrition. Banks are flush with deposits so they can afford to be stingy on interest payments.

Banks Happily Holding Short-Term Loans

One reason banks are interested in accelerating credit card marketing is that they hold more short-term loans. According to the Wall Street Journal, banks no longer hold many 30-year mortgages, for example. Instead their lending is more comprised of auto and commercial loans that tend to last only a few years.

Credit card delinquency rates for all commercial banks remain low, despite food and shelter prices increasing significantly. Payments Journal said delinquency rates on credit cards have increased recently. For all commercial banks, the rate is averaging 1.7% in Q12022 up from 1.53% in Q4 2021.

Low delinquency rates are favoring larger banks. The top 100 banks have only a 1.53% rate while those banks not in the top 100 had a 5% delinquency rate, more than three times higher.

Auto Loan Delinquencies Increase for Young Buyers

The news on auto loans is deteriorating. Young borrowers are starting to struggle with expensive auto loans. TransUnion shows people between the ages of 18 and 40 were falling behind on their car payments at rates higher than before the pandemic. Gen Z, or those born after 1995, have a past-due rate of 2.21 percent. Millennials, born between 1980 and 1994, have fallen behind at a 2.14% rate.

The average new car sticker prices is $46,526, just off from the record of $47,000 in January. Auto loan originations have dropped by 3 percent to 6.5 million from the first three months of 2022 vs. the same period in 2021.

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