US credit-card losses are falling faster than expected, with the six largest card issuers expected to earn nearly $10bn more in the coming 12 months than predicted, says a study by Moody’s.Historically, US credit-card write-offs have tracked the unemployment rate. But for the first time in a decade, loans considered uncollectible by lenders are falling faster than the jobless rate, prompting analysts to revise earnings models.
The divergence from past experience reflects bank efforts to weed out risky borrowers, moves by consumers to pare back debts after the excesses of the past decade and new credit card rules intended to discourage reckless lending.
“We are getting back to an old-fashioned basis of lending, providing credit only to people who have the ability to repay,” said Curt Beaudouin, an analyst at Moody’s.
The agency expects the six leading credit card issuers to earn nearly $10bn more in pre-tax profits in the 12 months from July than it forecast in March: $2.7bn for Citigroup; $2.6bn for JPMorgan Chase; $2.5bn for Bank of America; $931m for Capital One; $552m for American Express and $658m for Discover.
This ties in with a drop in household debt and a lower financial obligation ratio. Consider these charts from the St. Louis Fed:
These developments have occurred at the same time as we've seen an increase in the savings rate.
In short, households are paying down their debt right now.
