Credit-Card Spending Makes A Comeback As Confidence Rises

Consumers’ aversion to credit cards seems to be waning.

Revolving credit is rising, and many credit-card issuers have revved up marketing in hopes of winning new customers.

On Thursday, American Express Co. (AXP) and Capital One Financial Corp. (COF) said U.S. card balances grew in the fourth quarter.

American Express, which lends mostly to affluent customers, said its portfolio of U.S. card loans grew 4% from a year ago to $53.7 billion.

Capital One’s credit card loans in the U.S. grew 5.1% from a year earlier, to $56.6 billion. Most of the loan demand came towards the end of the quarter, Chief Financial Officer Gary Perlin told analysts during a conference call. Chief Executive Richard Fairbank said the bank sees “continuing signs of traction in our domestic card business.”

The holiday shopping season likely helped drive the increase, but experts say some consumers have also grown more confident in their ability to use credit cards after reining in spending following the recession.

“What’s going on is a combination of increased confidence on both the issuer and the consumer side,” said Ben Woolsey, director of marketing and consumer research at, a website that tracks credit-card offers.  “The indicators are starting to look positive. I think the combination of holiday spending and consumer sentiment is causing people to feel a bit freer to spend on credit cards.”

Many borrowers shunned plastic following the recession, as they worked to rid themselves of debt hangovers brought on when credit cards were easier to get. Banks also pulled up stakes, targeting consumers with only the most pristine credit.

But as more borrowers paid their bills on time, issuers grew more aggressive in going after new customers last year.

U.S. consumers received 447 million credit-card offers in the mail in November, up from 346 million a year ago, according to the most recent monthly numbers available from Mintel Comperemedia.

Bank of America Corp. (BAC) said Thursday new U.S. credit-cards accounts grew 53% from a year ago in the fourth quarter. Its loan balances actually declined, though purchase volume on its cards increased.

“If you’re running a bank, you have to be looking at the [credit] card business and pushing it hard,” said Donald Fandetti, an analyst with Citigroup Inc. (C), citing consistent returns the business has been posting.

Some credit-card issuers, like American Express Co. (AXP), rebounded from the credit crisis more quickly than their competitors.

American Express “used that upside to reinvest in marketing to get in front of” competitors, Fandetti said. Other banks took longer to bounce back, weighed down by capital constraints, and are now feeling more confident in pursuing growth, he said.

The quest for loan growth has become more pressing, though, with expectations that credit-quality improvements will slow. That is expected to eliminate some of the benefits lenders have received from freeing up loss reserves intended to cover bad loans.

American Express’ delinquency rate, or percentage of loans at least 30 days past due a payment, for U.S. card loans was 1.4% in the fourth quarter, down from 2.1% a year ago and down from 1.5% in the third quarter. The rate of U.S. card loans the company wrote off was 2.5% in the fourth quarter, down from 4.8% a year ago and down from 2.9% in the third quarter.

The company said the money it set aside to cover souring loans, called loan-loss provision, was $409 million, up from $239 million a year earlier and $249 million in the prior quarter, reflecting a larger reserve release in the year-earlier period and higher loans outstanding in the current period.

At Capital One, U.S. credit card-loan write-offs fell substantially from a year earlier, but rose 15 basis points from the third quarter, to a still low 4.07%. Delinquent loans also rose. “We expect that the domestic card credit metrics will continue to follow normal seasonal patterns in 2012,” Fairbank said.

“By our tally, we are gaining share in the card business,” Fairbank said. “I think we were gaining share in the card business across several categories including purchase volume originations and loan growth.”

Capital One made major investments to keep systems and infrastructure up with its rapid growth, CFO Perlin said. In the fourth quarter, marketing expenses in particular rose 36.4%, to $420 million, “to restart our loan-growth engine,” Perlin said.

Revolving credit, which is primarily comprised of credit-card balances, grew at a seasonally adjusted annualized rate of 8.5% in November to $798.3 billion, the Federal Reserve reported this month.

The combined average balances at the six largest card issuers are expected to grow about 6% in 2012, to $517 billion, after falling more than 5% to $488 billion last year, according to Moody’s Investors Service.

While balances are rising, the global economy could continue to weigh on consumers, who are more willing to use credit cards but are still careful about getting into debt.

“Consumers continue to be cautious about taking on credit card loans,” Dan Henry, chief financial officer of American Express, said during a conference call Thursday.

Some of the growth in credit may also be due to banks raising checking account fees and trying to charge customers to use debit cards, Woolsey said.

Many banks have added new checking fees and eliminated debit-card rewards programs. A handful, including Bank of America, attempted to charge customers monthly fees to use a debit card in response to new regulations that limit how much merchants pay to accept debit cards. Those banks eventually scrapped those plans amid consumer uproar.

“There’s been…some shift from people that maybe were using bank debit cards back into credit card in terms of the primary spend behavior,” Woolsey said.

Bank of America saw an “elevated level of account closings” in the fourth quarter, Chief Executive Brian Moynihan said during a conference call Thursday, citing its $5 debit-card fee plan.

U.S. credit card loans at Bank of America, which has been selling some unwanted card portfolios, fell 10% from a year ago to $102.3 billion, which is also down slightly from the third quarter. However, purchase volume, or the amount of money spent on its U.S. credit cards, was $50.9 billion, up 3.7% from a year ago and up 4.8% from the third quarter.

Citigroup said Tuesday card loans in its North American consumer banking segment were $75.9 billion in the fourth quarter, down 2% from a year ago, but up about 3% from the third quarter.

J.P. Morgan Chase & Co. (JPM) last week said fourth-quarter card loans totaled $132.3 billion, down 4% from a year ago, but up 4% from the third quarter.
Credit-Card Spending Makes A Comeback As Confidence Rises. (2012, January 19). Retrieved from


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