Nomura is out with a report that bodes marginally well for banks issuing credit cards and private credit card issuance. Nomura's Bill Carcache is signaling that more issuers are now reporting positive credit card balance growth trends. His take is that this will help grow revenues for some of the key credit card issuers -- but not for all of them.
JPMorgan Chase & Co. (JPM) was shown to have positive card balance growth for the first time since the financial crisis. Carcache also noted that Capital One Financial Corp. (COF) joined American Express Co. (AXP) and Discover Financial (DFS) in delivering positive loan growth this quarter over last year. Carcache's call also signaled that all four issuers appear poised to continue positive growth looking forward.
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The gains are not universal though. Carcache pointed out that Bank of America Corp. (BAC) and Citigroup Inc. (NYSE: C) both continue to see their credit card loan portfolios shrink at a decreasing rate.
Still, the overall view is that the credit card industry balance growth appears to be on track to accelerate modestly. He further noted that Discover, American Express and Citi are growing revenues as the rest of the industry shrinks. Overall revenue growth across the major issuers was negative this quarter, except for Discover, American Express and Citi. American Express was the only credit card issuer to drive both net interest income and non-interest income growth higher in the second quarter from a year ago.
Carcache also warned that rewards growth accelerated as the purchase volume growth accelerates. He said that year-over-year purchase volume growth accelerated from last quarter’s depressed levels for all issuers, except for Bank of America. The strong purchase volume growth translated into interchange revenue growth at American Express, Capital One and Citi. This suggests that higher rewards expenses offset revenue upside at J.P. Morgan and Discover. Discover was the only issuer to report a lower efficiency ratio in the second quarter, versus the same period last year. Actual expense dollars increased at all issuers except for Capital One.
Credit is also said to be less of a tailwind for issuers that are growing. Carcache said:
Looking ahead, we expect provisions to grow modestly at the industry level due to a combination of lower reserve releases at BofA, Capital One, JPMorgan and growth-driven reserve building Discover and AmEx. As expected, the credit loss outlook remains benign.
Unfortunately, Carcache has a Neutral rating on the issuer rating for the sector. His take is that industry returns are likely to remain lackluster until core metrics improve. Still, there are positive analyst ratings on all but J.P. Morgan. The firm has Buy ratings on American Express, Bank of America, Citigroup, Capital One and Discover.
All in all, the trends are positive, but the gains are far from universal.
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