The current fiscal year has started off on a positive note for credit card lenders who had been reeling under the losses due to the slump in economy over the last couple of years. Right from the beginning of this year, banks have been reporting a decrease in the number of losses being incurred by them. Lesser debts are being written off giving the banks and chance to smile again.
However, despite this steady improvement, two big credit card lenders in the United States, Citigroup Inc and Capital One have sparked off fears that this decrease may be nearing the end. They fear that the stagnating credit quality will have a negative impact on the losses which are still relatively high as compared to historical standards.
While most of the major banks across the country reported a significant fall in the number of delinquencies, which are the early warning signs of impending losses, Capital One was the only bank that saw a very minimal slump in the delinquency rate. The delinquency rate stood at 4.8 percent for the month of May and it fell to 4.79 percent in June.
The delinquency rate for Citigroup Inc. fell steadily; however, the rate of losses due to credit cards, which stood at 11.16% in the month of May increased to 11.46% in the month of June. The shares of a majority of the credit card issuing bank fell slightly last Thursday with Capital One being the largest loser. At the end of the day`s trading, the shares for Capital One stood at $43.26 after falling by 2.85%.
Sandler O`Neill`s financial analyst, Michael Taiano, said that soon other banks will also see a slowdown in the decrease of delinquency rates. He went on to say that the tax refunds over the last few months enabled customers to use that money to pay off their bills on time. He says that June is the month to look out for since that is when most people will not be able to depend on their tax refund amounts to repay their dues on time. Hence, this is when the chances of delinquency rate increasing are higher.
Jamie Dimon, the Chief Executive of JP Morgan Chase and Co, fuelled further pessimism in the credit card industry while revealing the performance results of his bank for the second quarter of this fiscal year. He said that though the company has been able to post profits beyond the expectations of Wall Street, it was early to say if it is the time for merrymaking.