Q2 2012: U.S. Credit Card Issuer Performance Snapshot
The second quarter of 2012 showed a continuing trend of improving loss rates and increasing purchase volume compared to both the prior year and the prior quarter; however, credit card issuers still face sluggish receivables growth. The most significant event in the second quarter of 2012 was the close of Capital One’s acquisition of HSBC’s card business, involving over $26B in U.S. credit card receivables. Below is our commentary for Q2 2012:
- Stagnant Receivables: Industry receivables remained relatively flat from the first quarter, and U.S. issuers recorded a decrease of 1.5% over prior year totals. A large part of this decline is attributable to Bank of America’s year over year receivables reduction of 9.9%, driven by a continued focus on credit quality and the sale of a number of small affinity and agent banking portfolios. In addition, while not reflected in overall industry figures, Capital One achieved a 50% increase in receivables through its acquisition of HSBC’s portfolio.
- Lower Overall Returns: Although most issuer returns are still at attractive levels by historical standards, negative profitability trends were nearly ubiquitous in the last quarter. After-tax industry return on assets came in it at 3.44% for the quarter (annualized), down 110 basis points from the same period last year. The largest impact came from a stabilization of reserve levels, which resulted in fewer reserve releases that have buoyed returns in the recent past. Ignoring Capital One’s one-time accounting charges from the acquisition of HSBC, Bank of America posted the largest decline; however, absolute returns remained similar to the industry average for the quarter.
- Rising Purchase Volumes: Purchase volumes for U.S. issuers increased significantly compared to both prior year and prior quarter figures. Overall, purchase volume rose 6.8% on a year-over-year basis while rising 8.6% compared to the prior quarter. Notably, every issuer tracked in our study posted an increase in purchase volume in the second quarter compared to the first quarter of 2012, with Chase experiencing the largest gain at nearly 11% (ignoring Capital One’s increase from the acquisition of HSBC).
- Continued Improvement in Loss Rates: Industry-wide credit quality continued its favorable performance in the second quarter, declining 178 basis points on a year-over-year basis. However, we are beginning to see a slow-down in the rate of decline, with a relatively small 16 basis points improvement versus the first quarter of this year.
Source: Issuer quarterly reports and First Annapolis analysis
1 Includes income from acquiring business and private label receivables and volume. Restated from previous quarter which included income from auto and student lending.
2 Restated splitting between Citibranded North American and Citi Retail Services beginning 1Q 2012. Purchase volume includes cash advances.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards. After-tax ROA includes U.S. consumer, business, and merchant acquiring. Period amounts have been reclassified to conform to current period presentation.
4 U.S.card business, small business, installment loans only. Purchase volume excludes cash advances. 2Q12 Results include the impact of May 1, 2012 closing of HSBC transaction resulting in approx $28.2 billion in receivables at closing
5 Receivables and charge-offs are for U.S. Cardmember Lending business only. Purchase volume is for U.S. Card Services segment, consumer and small business. * Restated: Average earning assets is defined as all charge and revolving credit.
6 Includes U.S. domestic receivables and purchase volumes only. ROA includes merchant services and implied U.S. Cards tax rate of ~40%.
7 After Tax ROA reflects Payment Services line of business income and average loans.
8 Due to a change in reporting post 2Q 2011, changes are calculated excluding HSBC receivables.
9 Total includes the acquisition of HSBC.
10 Due to purchase accounting treatment of HSBC losses, totals exclude Capital One. After Tax ROA and purchase volume totals exclude Wells Fargo. Reflects any previous quarter restatements and includes addition of U.S. Bank.
For more information, please contact James Watts, Senior Consultant specializing in Card Issuing, email@example.com
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