Credit card profits have rebounded nicely during the recovery period following the Great Recession.
According to R.K. Hammer’s Card Knowledge Factory, the pre-tax ROA (return on assets) for credit cards, during the Great Recession (2008-2009) averaged 2.88% (between 1.50% and 4.25%), while the S&P 500 averaged 1009, (2008 EOY at 903 and 2009 EOY at 1115).
By comparison, the pre-tax ROA (return on assets) for credit cards, during the current Recovery (2012-2015) averaged 3.67% (between 3.30% and 4.04%), while the S&P 500 averaged 1735, (2012 EOY at 1426 and 2015 EOY at 2043).
S&P 500 EOY 1418-1481
P/T ROA% 4.60-4.65%
GREAT RECESSION 2008-2009
S&P 500 EOY 903-1115
P/T ROA% 1.50-4.25%
POST RECESSION 2010-2011
S&P 500 EOY 1257-1257
P/T ROA% 2.10-3.00%
S&P 500 EOY 1426-2043
P/T ROA% 3.30-4.04%
AVERAGE CARD ROA
Card Events During Great Recession
Card Events During Recovery
Credit Crisis Spent
What should all this tell you?
1. No business or industry is immune from the laws of economic gravity.
2. Pay attention to the changing volatility signals, as a precursor.
3. During last recession: stocks and 401k’s dropped off, earnings slumped.
4. Many card members had their accounts closed or lines of credit reduced.
5. The average recovery post-recession period has been four years.
6. We are now into the seventh year of post-recession economic recovery.
7. Is another economic downturn/recession forthcoming? Highly likely.
8. How severe of a downturn? That depends upon the pent up pressure.
9. Watch for the Fed to raise interest rates, modestly (25 bps.) at a time.
10. Guard your level of debt. Minimize your exposure to financial volatility.
11. Business cycles ebb and flow, good, bad and ugly; then go at it all over.
Robert Hammer is Founder and CEO at R.K. Hammer & Card Knowledge Factory
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