Credit card ROA has finally clawed its way back after the devastating “Great Recession” and “Credit Crisis” of 2008-09. All the nation’s top credit card issuers reported record profits in 2018.
This past year, the estimated pre-tax, return-on-assets (ROA) rose modestly to 4.60%, compared to 4.45% for 2017, according to R.K. Hammer, credit card portfolio evaluation and sales experts.
So is it possible 2019 has a lock on solid profits again?
Analyzing credit card portfolios for 2018 reveals the detrimental impact of the last recession has fully flushed through the system. Capital has been restored, dividends also mostly restored, and loan losses have moderated downward. Additionally, consumer sentiment and confidence has increased over the past two years, new marketing investments have reached pre-recession levels, and job creation has reached historic records for most segments.
However, there are potential storms gathering on the horizon for the U.S. economy. Whether certain asset class bubbles burst or not remains to be seen. But, If the U.S. faces a downturn, businesses will pull back and credit quality will tighten. Several economists are pointing to the growing economic uncertainty, globally and domestically, as well as natural business cycles pointing to a long overdue recession.
Avoiding 2019-2020 Challenges
R.K. Hammer says it is advising its credit card portfolio clients to keep a sharp eye on new marketing results, including the CPA cost of attracting those applicants, repayment behavior of those accounts, activating inactive accounts, and monitoring the 30-day delinquency bucket and cure rates. Additionally, watching the Fed Beige Book for big picture GDP growth.
Credit card issuers who have heavily invested in mobile and digital channels, in addition to the other 25+ traditional new credit card account distribution channels will fair best in economic downturn headwinds.
Hammer notes credit card issuers who simply milked their card organizations for funds to the parent enterprise over the past decade will be in for some rough weather ahead.
Will Consumer Sentiment and Consumer Confidence hold for 2019 and 2020? Roll the Dice.
Large Issuer 2018 Profits
Credit card profits (after tax) among the nation’s Top 4 bank credit card issuers soared 31.4% in the fourth quarter (4Q/18), compared to one year ago (YOY). This compares to a YOY growth rate of 28.8% for the prior quarter.
Aggregate credit card profits (after tax) for the top four issuers logged in at $2363 million for 4Q/18, compared to $2624 million for 3Q/18 and $1798 million for 4Q/17, according to figures collected by CardData.
The Top 4, (Chase, Capital One, Bank of America and Citibank) 4Q/18 growth was somewhat skewed by “kitchen sink” fourth quarters reported by Capital One in 4Q/18 and Citibank in 4Q/17, according to analysis by RAM Research.
While Capital One U.S. credit card profits softened, Citibank U.S. credit card profits skyrocketed by 297% YOY for 4Q/18.