2008 CREDIT CARD INDUSTRY FORECAST
EXPECTED YEAR-END ECONOMIC AND FINANCIAL FACTORS SUBJECT TO:
Total YE Card Loans (up 3% to $929.1 Billion) Repayment Rates (softening 2% in a tighter economy)
Cash Advances (up 5%) Purchases (up only 3%, as consumers more cautious)
Card Fees (up 6%, to 41% of total revenue) Interest Income (falls by 2%, to 59% of total revenue)
Outlook for 2008 Card Profits in the Hammer Model
Card charge offs and delinquency expected to rise by 30 bps. each, to 5.05% and 4.95% respectively.
Total Income Yield off by 40 bps. to 17.90%
Operating Expense down by 25 bps. to 4.40%
“Blended” Cost of Funds down by 50 bps. to 3.80%
Net Effect: Expected 2008 Pre-tax ROA% flat from 12/31/07, at 4.65% ROA
Other Expected 2008 Developments
Modest economic downturn expected in the last two to three Quarters of 2008.
Some boost by economic stimulus package, liquidity injection by the Fed, and interest rate reductions.
Organic new card account growth remains more difficult to achieve in a competitive environment.
Card Portfolio Acquisitions expected to lift receivables for some, but at a higher per-account cost.
Tightening of new card applicant criteria; a heightened focus on credit quality.
R.K. HAMMER is a leading advisor to bank and private label card issuers, based in Thousand Oaks, CA, providing credit card portfolio valuations and brokering of card deals between buyers and sellers.