2009 Retail Cards in Circulation up Meager 1.1% Y/Y

The number of retail credit cards in circulation held steady in 2009, up 1.1%. Meanwhile, according to the Fitch’s “Retail Cards Index,” gross charge-offs registered another consecutive monthly drop-off in June by more than half a percentage point to 10.57%, a dip of 56 basis points from the month prior. The “Monthly Payment Rate Index” for retail cards for the same month rebounded after a one month dip, reporting an increase of 26 bps to 14.22% and a 10% improvement year over year. This rate is also an improvement to the 13.96% seen in the prior month. According to CardData, the total number of private label cards in circulation held steady for a slight increase to an estimated 444 million in 2009, compared to 440 million in 2008 and 510 million five years ago (CF Library 1/13/10; 4/28/10).

RETAIL CARDS-IN-FORCE(millions)
1999: 572
2000: 590
2001: 583
2002: 571
2003: 549
2004: 510
2005: 481
2006: 468
2007: 455
2008: 440
2009: 444
Source: CardData (www.carddata.com)

COF & Unemployment Slow, Linger at 10%

The job loss rate in June slowed to a 9.6% unemployment rate.
Coincidentally, the credit card charge off rate slowed for the first
time in two years to now stand at 10.28%. This, after months of soaring
past the 6% mark in December of 2008, the 8% mark that following spring,
and finally the 10% mark in September of ’09, comes as sweet relief to
rampant fear last year credit card-backed securities would realistically
near 12% by this time. According to CardData (www.carddata.com), average
charge-offs for the first quarter were an unprecedented 10.93% with an
unemployment rate of 10.2%. With a 9.6% unemployment rate for June,
second quarter managed charge-offs are expected to hover around 10.2%.
With the unemployment rate showing signs of improvement, skyrocketing
card charge-offs have done the same and will hopefully not hit the
dreaded 11% mark. For complete details on credit card charge-offs visit
Carddata.com (www.carddata.com).

Unemployment Charge-Offs
Jun/08: 5.7% 5.3%
Sep/08: 6.0% 5.5%
Dec/08: 7.1% 6.0%
Mar/09: 9.0% 8.7%
Jun/09: 9.7% 9.5%
Sep/09: 10.4% 10.1%
Dec/09: 9.7% 10.6%
Mar/10: 10.2% 10.93%
Jun/10: 9.6% 10.28%
Source: CardData (www.carddata.com)

WALL STREET RESEARCH

Credit card charge-offs have declined for the third straight month while poor consumer loan demand has kept the credit card industry relatively flat. Major credit card companies like American Express and Capital One Financial recent quarterly profits beat expectations. Both American Express and Capital One Financial released their earnings last Thursday with profits close to a triple of what it was the same quarter in 2009. Both companies have seen losses on bad loans decline for the quarter. The tightening of consumer spending due to the economic crisis and lower employment rates has kept the companies in check.

COF

Credit card charge-offs have declined for the third straight month, but poor consumer loan demand has kept the credit card industry relatively flat.Major credit card companies like Discover Financial Services posted quarterly profits. However, the tightening of consumer spending due to the economic crisis and lower employment rates have kept some companies in check. Customers without jobs are now hesitant to get into debt, and customers with good jobs, acutely aware of their privileged position, are also purchasing less on credit.

Cap One Card Revenues Down 7.6%

Capital One posted 2Q/10 domestic credit card revenues down $188.0 million (7.6%) from 1Q/10 with loans totaling $54.6 billion, a decline of $1.6 billion(2.9%). The revenue margin in the Cap One Domestic Card segment declined 48 basis points to 16.61% from 17.09% in the prior quarter while provision expense decreased $421 million(38.4) thanks to lower charge-offs, which improved 99 basis points to 9.49% from 10.48%. Meanwhile, delinquency rates improved 51 basis points to 4.79% from 5.30% while purchase volumes in domestic cards increased $2.6 billion by 11.0%. For complete details on Capital One’s third quarter performance, visit CardData (www.carddata.com).

U.S. CARD NET INCOME
1Q/09: $000.7 million
2Q/09: $173.0 million
3Q/09: $289.8 million
4Q/09: $461.0 million
1Q/10: $489.0 million
2Q/10: $568.0 million
Source: CardData (www.carddata.com)

U.S. Bank Posts 2Q/10 Net Revenue Up $4.5B

U.S. Bancorp reported net income of $766 million for the second quarter of 2010, driven by record total net revenue of $4.5 billion for 8.7% growth over the year ago period. The quarter was highlighted with $1.7 billion of lines related to new credit card accounts; year-over-year growth in payments-related fee income thanks to merchant processing services revenue up 15.1%; and a third consecutive quarterly decrease in the provision for credit losses with net charge-offs having decreased 1.9% since last quarter. Additionally, US Bank saw provision for credit losses in excess of net-charge-offs of $25 million and a $28 million gain related thanks to its investment in Visa. The Bank’s Payment Services consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit and merchant processing contributed $180 million of the Company’s net income. This contribution is an increase of $126 million over the year ago period and a $61 million increase over the prior quarter and is thanks to a combination of higher total net revenue, up $121 million (12.1% Y/Y) and a lower provision for credit losses. The provision for credit losses decreased $150 million (29.5%) due to a favorable change in the reserve allocation due to improved loss rates, partially offset by reserve build related to credit card portfolio purchases.

MERCHANT ACQUIRING VOLUME HISTORICAL
1Q/08: $64,853,000,000
2Q/08: $66,940,000,000
3Q/08: $66,941,000,000
4Q/08: $58,630,000,000
1Q/09: $57,877,000,000
2Q/09: $59,725,000,000
3Q/09: $62,011,000,000
4Q/09: $60,729,000,000
1Q/10: $63,437,000,000
2Q/10: $72,952,000,000
Source: CardData (www.carddata.com)

Citi Transactions Posts 2Q/10 Net Income of $929MM

Citigroup reported 2Q/10 net income of $2.7 billion or $0.09 per diluted share, on revenues of $22.1 billion, including Transaction Services with $929 million in net income, for a second consecutive profitable quarter. Provisions for credit losses and for benefits and claims declined $2.0 billion sequentially to $6.7 billion, the lowest level since the third quarter of 2007, reflecting continued improvement in credit quality. This helped increase Regional Consumer Banking’s net income by 16% sequentially to $1.2 billion. Citigroup has been focusing on Transaction Services and Regional Consumer Banking. Regional Consumer Banking (“RCB”) revenues were $8.0 billion, down $50 million, or 1%, sequentially, as declines in North America and EMEA were partially offset by continued growth in Asia and Latin America. Transaction Services revenues were $2.5 billion, up $65 million, or 3%, sequentially, with growth across all international regions. Transaction Services net credit losses were $1 million, flat compared to the prior quarter. The $35 million net loan loss reserve release in the quarter was $17 million higher than the prior quarter’s release. Net credit losses in Local Consumer Lending declined $403 million, or 8%, sequentially to $4.5 billion, mainly driven by Retail Partner Cards.

Bank Of America Card Services Down $400MM Y/Y

Bank of America reported second-quarter 2010 net income of $3.1 billion, compared to net income of $3.2 billion a year ago. Results were driven by lower credit costs, which improved for the fourth straight quarter, and the sale of non-core assets as the company focused on strengthening key business lines and divesting assets that do not directly contribute to providing financial services to customers. With average retail deposit balances having risen 3% year over year to $649.6 billion, Bank of America extended approximately $174 billion in credit in the second quarter of 2010, including $3 billion in domestic consumer and small business cards and $8 billion in other consumer credit. Bank of America agreed to sell its equity position in MasterCard, resulting in a pretax gain of approximately $440 million to focus on its core businesses and strengthen capital ratios. Global Card Services net income increased $2.4 billion compared to a year ago due to declining credit costs reflecting continued improvement in the U.S. economy; Revenue decreased $401 million from a year ago, driven by lower average loans and reduced interest and fee income primarily resulting from the implementation of the CARD Act, partially offset by the $440 million pretax gain on the sale of the MasterCard position.

BOFA CARD REVENUE($billions)
2Q/10 6.9
1Q/10 6.8
2Q/09 7.3
SOURCE: BofA

Chase Back in the Black, Posting $343MM 2Q10 Net Income

JPMorgan Chase reported 2Q/10 net income of $4.8 billion, compared with $2.7 billion in the second quarter of 2009. Chase Card Services reported a net income of $343 million compared to a loss of $303million last quarter and loss of $672million loss the year ago quarter. Meanwhile, Chase Card Services reported net revenue of $4.2billion, compared to $4.4billion last quarter and 4.9billion the year ago quarter. Additionally, the division reported a provision for credit losses 2.2 billion, compared to 3.5 billion last quarter and 4.6 billion last year with a noninterest expense of 1.4 billion, as compared to 1.4 billion last quarter as well and 1.3 billion the year ago quarter for an increase of $103 million, or 8%, due to higher marketing expense. End-of-period loans were $143.0 billion, a decrease of $28.5 billion, or 17%, from the prior year and $6.3 billion, or 4%, from the prior quarter. Average loans were $146.3 billion, a decrease of $27.8 billion, or 16%, from the prior year and $9.5 billion, or 6%, from the prior quarter. The declines in both end-of-period and average loans were consistent with expected portfolio run-off.

CHASE NET INCOME
1Q/08 $609 million
2Q/08 $250 million
3Q/08 $292 million
4Q/08 -$371 million
1Q/09 -$547 million
2Q/09 -$672 million
3Q/09 -$700 million
4Q/09 -$306 million
1Q/10 -$303 million
2Q/10 $343 million
Source: CardData.com

Fico Launches Advanced Debt Collection

Fico decision management has made available its “Debt Manager” solution version 8.0 for collections and recovery with a complete redesign of the company’s core collection system. Offering new analytic and adaptive capabilities designed to help lenders accelerate collections and reduce operating costs, “Debt Manager 8.0” arrives at a time when credit card charge-offs remain at historically high levels. The collection system integrates adaptive control technology, built-in analytics and events-based design, allowing clients to design, test, compare and continually refine their strategies to improve effectiveness in collections. It also provides a new user interface; eliminates the need for overnight batch processing; is built entirely on a services-oriented architecture that allows for faster and easier upgrades; and allows for sharing of data with other FICO applications.

Credit Card Charge-offs up .09% Y/Y

Moody’s Credit Card Indices indicate 10.71% of securitized credit card loans were written off as uncollectable in May, slightly higher than the 10.62% in May 2009 but down from 10.91% in April, according to the Associated Press. Moody’s said cards with payments that are 30 to 69 days past due declined for a seventh-straight month, and is now close to the historically low range seen in 2006 and 2007. The payment rate also improved to 18.59%, 10% higher than a year ago, while unemployment, an important factor in charge-offs, is expected to plateau in the second half of the year at around 10.1%. Combined with the steady improvement in the delinquency rate and payment rate throughout the spring, Moody’s said that supports its view that charge-offs have peaked.

Discover Reports 2Q/10 Net Income up $258mm

Discover Financial reported 2Q10 net income of $258 million compared to the year ago figure of $226 million. This was thanks in part to $23 billion in card sales volume, an increase of 6% year-over-year; net charge-offs being down $81 million and over 30 days delinquencies down $266 million from the prior quarter; and the continuously dropping net charge-off rate of 7.97%, which is expected to drop to between 7.5% and 8%. Additionally, Discover Payment Services’ showed continued strong results with profit before tax up 36% from the prior year to $36 million, and transaction volume of $37 billion, up $10 million from the prior year. Revenues were up $6 million, reflecting an increase in the number of transactions and higher margin volume on the PULSE network and lower incentive payments as well as higher Diners Club revenues. Meanwhile, Payment Services dollar volume was $37 billion, up 1% from the prior year.

U.S. CARD PRE-TAX PROFITS
1Q/09: $167.0 million
2Q/09: $387.9 million
3Q/09: $912.8 million
4Q/09: $546.5 million
1Q/10: $207.6 million
2Q/10: $258.0 million
Source: CardData (www.carddata.com)