Credit card ROA (pre-tax return on assets) for 2019 is estimated to rise to 4.80%, compared to 4.60% for the prior year, and compared to 4.45% for 2017. In 1987 pre-tax ROA peaked at 5.00% and bottomed at 1.50% in 2009.
According to R.K. Hammer, credit card portfolio evaluation and sales experts, total revenue increased 10 bps (basis points) to 17.90% for 2019, compared to 17.80% for 2018. Operating expense declined 10 bps YOY (year-on-year) to 6.90%, while charge-offs remained steady at 4.00%. Hammer projects cost-of-funds rose 10 bps to 2.30% for 2019.
Payment earnings reports for the nation’s top credit card issuers, global payments networks and supporting businesses gets underway this morning with Chase (JPM), Citibank (C) and Wells Fargo (WFS) releasing before the market open, according to CardData and PYRPTS.
U.S. Bank (USB) and Bank of America (BAC) are scheduled to report before the market open, tomorrow. Capital One (COF) will release after the market close on Tuesday, January 21st reports Bankcenter and CardBuzz.
Senior Analyst Robert McKinley of CardData, CardFlash and CardTrak says the previous quarter data show a decline in profitability by the nation’s four largest issuers. McKinley notes the rising costs of reward programs and account acquisitions has become a drag on profits in late 2019.
Top 4 Credit Card Profits
Credit card profits (after tax) among the nation’s Top 4 bank credit card issuers shriveled by 4.2% YOY (year-on-year) in the third-quarter (3Q/19), compared to 44.0% one-year ago. The surge in 2018 was directly related to the corporate tax cuts.
Profits (after tax) among the nation’s Top 4 U.S. credit card issuers (Chase [JPM]; Capital One [COF]; Bank of America [BAC]; Citibank [C]) declined to $2905 million in the third-quarter, compared to $2910 million in the prior quarter, and $3033 million for 3Q/18, according to figures gathered by CardData.
Among the Top 4, the growth in U.S. card profits over the past year has been driven by Citibank and Bank of America. However, over the past five years, Capital One has been the clear leader among the Top in nearly all YOY metrics, based on analysis by RAM Research and PYRPTS.
Top 4 Credit Card Yield
Citibank and Bank of America joined the double-digit yield club in the third-quarter of last year and hit individual records in the first-quarter of this year. For 3Q/19 the sequential increase ranged from 6 bps for Citibank to 15 bps for Capital One. Sub-prime card specialist, COF, with 32% of its U.S. credit card portfolio carrying FICO scores of 660 or below, leads the peer group with a yield of 15.73%. BAC reported the lowest yield ratio of 10.85% for 3Q/19, based on current analysis of RAM Research.
While there are slight variations in the reported yield data definition reported by issuers, the average timeline and trend-line are meaningful. Historically yields for the third-quarter jump 30 bps, compared to the second-quarter, as the denominator changes, notes Robert McKinley,
The U.S. Top 4 Issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], Citibank [C]) credit card yield rose 5 basis points (bps) sequentially at 12.29% and up 35 bps year-on-year (YOY) for the third-quarter (3Q/19), compared to 12.24% for the prior quarter, and 11.94% for 3Q/18, according to CardData.