First-Quarter Charge-Offs Rise Sharply - Issuers Beef-Up Reserves • 05/09/2019

First-quarter charge-offs among the Big 6 domestic credit card issuers rose sharply as loan loss reserves are beefed-up across-the-board. Credit card charge-offs among the nation’s Big 6 credit card issuers rose 14 basis points (bps) year-on-year (YOY) for the first-quarter (1Q/19), and up 34 bps sequentially.

The Big 6 (Chase [JPM], Capital One [COF], Bank of America [BAC], Citibank [C], American Express [AXP], Discover [DFS]) reported an aggregate charge-off ratio of 3.65% for 1Q/19, compared to 3.31% for 4Q/18 and 3.51% for 1Q/18, based on figures gathered by CardData.

The first-quarter charge-off ratio is the highest in at least the past five years, increasing 81 bps, compared to 1Q/15, according to analysis by RAM Research.

Chase Charge-Offs & Loan Loss Trend

The U.S. consumer credit card charge-off ratio for Chase soared 30 bps YOY in the first quarter, but down 9 bps from 1Q/18. Chase reported a charge-off ratio of 3.23% for 1Q/19, compared to 2.93% for 4Q/18 and 3.32% for 1Q/18. For the first quarter of 2015, Chase posted 2.62% consumer credit card charge-off ratio.

Chase credit card loan loss reserves for U.S. credit cards increased 6.1% YOY for the first-quarter to $5183 million, compared to $5184 million in the prior quarter and $4884 million for 1Q/18.

Capital One Charge-Offs & Loan Loss Trend

The Capital One U.S. consumer credit card charge-off ratio for 1Q/19 was up 40 bps from the prior quarter and down 22 bps YOY. The issuer reported a charge-off ratio of 5.04% for 1Q/19, compared to 4.64% for 4Q/18 and 5.26% for 1Q/18. For the first-quarter of 2015, Capital One reported a U.S. credit card charge-off ratio of 3.55%.

Capital One’s credit card loan loss reserves for U.S. credit cards decreased 6.4% YOY for the first-quarter to $1291 million, compared to $1229 million in the prior quarter and $1380 million for 1Q/18. Capital is the only major issuer reducing loan loss reserve for the first-quarter.

Bank of America Charge-Offs & Loan Loss Trend

The U.S. consumer credit card Bank of America charge-off ratio jumped 28 bps YOY in the first quarter, and up 17 bps from 1Q/18. Bank of America reported a charge-off ratio of 3.18% for 1Q/19, compared to 2.90% for 4Q/18 and 3.01% for 1Q/18. For the first quarter of 2015, Bank of America posted 2.84% consumer credit card charge-off ratio.

Bank of America’s consumer banking loan loss reserves increased 4.2% YOY for the first-quarter to $974 million, compared to $915 million in the prior quarter and $935 million for 1Q/18.

Citibank Charge-Offs & Loan Loss Trend

The Citibank North America (N.A.).consumer credit card charge-off ratio soared 36 bps in the first-quarter, and up 22 bps from 1Q/18. Citibank reported a charge-off ratio of 3.26% for 1Q/19, compared to 2.90% for 4Q/18 and 3.04% for 1Q/18. For the first-quarter of 2015, Citibank posted 3.11% consumer credit card charge-off ratio.

Citibank’s North America consumer banking loan loss reserves increased 8.2% YOY for the first-quarter to $1538 million, compared to $1368 million in the prior quarter and $1421 million for 1Q/18.

American Express Charge-Offs & Loan Loss Trend

American Express U.S. gross principal charge-offs, as a percentage of average loans, rose 30 bps sequentially and increased 40 bps YOY in 1Q/19 to 2.8%, compared to 2.5% for 4Q/18 and 2.4% for 1Q/18.

American Express U.S. net principal charge-offs, as a percentage of average loans, rose 30 bps sequentially and increased 40 bps YOY in 1Q/19 to 2.4%, compared to 2.1% for 4Q/18 and 2.0% for 1Q/18.

American Express U.S. gross principal charge-offs, as a percentage of average receivables, rose 20 bps sequentially and increased 10 bps YOY in 1Q/19 to 1.6%, compared to 1.4% for 4Q/18 and 1.5% for 1Q/18.

American Express U.S. net principal charge-offs, as a percentage of average receivables, rose 20 bps sequentially and increased 10 bps YOY in 1Q/19 to 1.4%, compared to 1.2% for 4Q/18 and 1.3% for 1Q/18.

American Express Global Consumer Services Group (GCSG) loan loss reserves increased 4.2% YOY for the first-quarter to $552 million, compared to $726 million in the prior quarter and $540 million for 1Q/18.

Discover Charge-Offs & Loan Loss Trend

The Discover gross principal credit card charge-off ratio for 1Q/19 jumped 39 bps from the prior quarter, but down 32 bps YOY. The issuer reported a gross principal charge-off ratio of 4.40% for 1Q/19, compared to 4.01% for 4Q/18 and 4.08% for 1Q/18. For the first-quarter of 2015, Discover reported 3.21% in U.S. credit card gross principal credit card charge-offs.

The Discover net principal credit card charge-off ratio for 1Q/19 rose 18 bps YOY and up 27 bps from the prior quarter.

The issuer reported a net principal charge-off ratio of 3.50% for 1Q/19, compared to 3.23% for 4Q/18 and 3.32% for 1Q/18. For the first-quarter of 2015, Discover reported 2.40% in U.S. credit card net principal credit card charge-offs.

Discover credit card loan loss reserves for U.S. credit cards increased 19.0% YOY for the first-quarter to $2252 million, compared to $2147 million in the prior quarter and $1892 million for 1Q/18.