Overall balances on credit card and similar loans are up from a year earlier amid warnings of growing recession risks
Big US banks, including JPMorgan Chase & Co and Citigroup, appear set for some earnings boost from a pick-up in the battered credit-card business, but a possible recession would pull consumers back and bring losses on outstanding loans.
When consumer spending crashed during the pandemic, Citigroup marked a low point as 2020 ended with a 13% fall in quarterly revenue from US Citi-branded cards from a year earlier. “The most profitable part of the credit card business is the consumer revolving balances and then paying them back over time,” said analyst Jason Goldberg of Barclays.
The share of active card accounts with revolving balances share has increased for the past two quarters to 52.6% after plunging to 51.3% in the pandemic. Those balances generally prevailed at around the 60% level for the seven years before Covid-19, after being as high as 70% during the 2008 financial crisis, according to data from the American Bankers Association.Banks say cardholders are paying off their debts a little more slowly now, resulting in higher interest-bearing balances.
Chase, the biggest issuer of cards in the US, has found evidence to quash some investor concern that consumers had sworn off credit cards, JPMorgan's Lake said. The banks say they learnt from the financial crisis, that knowing who to lend how much is more important to profits than trying to anticipate recessions.
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