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Credit card metrics for February were largely consistent with trends seen in recent months, continuing to normalize gradually, with the exception of Bread Financial (NYSE: BFHs).
But the trend of charge-off and arrears is still there generally below pre-pandemic levels, Baird said. “Given the broader sell-off in finance, combined with healthy credit quality, we will continue to capitalize on the weakness of Capital One Financial (NYSE: COF) and American Express (NYSE: AXP),” said analyst David George.
Jefferies noted that accounts receivable fell 1% M/M, driven by the seasonality typically seen this time of year. “The current macro/inflation environment continues to affect the non-prime cohort more acutely, while the main cohort appears to be stabilizing,” said analyst John Hecht.
Wolfe Research defends its Underweight stance on Card issuer Capital One (COF), Discover Financial (NYSE:DFS), Financial Synchronization (NYSE: SYF), and Bread Financial (BFH) along with this month’s credit data.
Note that Bread Financial (BFH) is the only credit card issuer with higher arrears and net charge levels than the levels it experienced in the pre-pandemic era of February 2020 as seen in the table below.
“Normalization of delinquency rates continues beyond seasonality,” said analyst Bill Carcache. “We expect the formation arrears rate to continue to increase over the coming months before accelerating later in the year as the impact of last year’s rate hike prompted a further slowdown and led to an increase in initial claims.”
Meanwhile, KBW remains bullish on card issuers broadly as “these companies warrant premium valuations relative to the regional banking space.”
| 2023 | 2022 | 2020 | ||||||
| Company | Heart | Type | February | January | December | 3 months on average | February | bps change |
| Capital One | COF | crime | 3.72% | 3.65% | 3.43% | 3.60% | 3.88% | -16 |
| charging | 4.16% | 3.81% | 3.57% | 3.85% | 4.68% | -52 | ||
| American Express | AXP | crime | 1.10% | 1.00% | 1.00% | 1.03% | 1.60% | -50 |
| charging | 1.40% | 1.50% | 1.20% | 1.37% | 2.60% | -120 | ||
| J.P. Morgan | NYSE:JPM | crime | 0.88% | 0.83% | 0.76% | 0.82% | 1.14% | -26 |
| charging | 1.33% | 1.17% | 1.24% | 1.25% | 2.20% | -87 | ||
| Synchronization | SIF | crime | 3.90% | 3.80% | 3.70% | 3.80% | 4.50% | -60 |
| custom charging | 4.70% | 4.30% | 3.40% | 4.13% | 5.30% | -60 | ||
| Find | DFS | crime | 2.74% | 2.67% | 2.53% | 2.65% | 2.64% | -10 |
| charging | 3.40% | 2.81% | 2.54% | 2.92% | 3.84% | -44 | ||
| Bread Finance | BFH | crime | 6.00% | 5.80% | 5.50% | 5.77% | 5.90% | 10 |
| charging | 7.80% | 6.70% | 6.70% | 7.07% | 6.80% | 100 | ||
| Citigroup | NYSE:C | crime | 1.12% | 1.04% | 1.01% | 1.06% | 1.58% | -46 |
| charging | 1.55% | 1.50% | 1.34% | 1.46% | 2.64% | -109 | ||
| Bank of America | NYSE: BA | crime | 1.14% | 1.09% | 1.03% | 1.09% | 1.58% | -44 |
| charging | 1.61% | 1.50% | 1.43% | 1.51% | 2.55% | -94 | ||
| Crime rate | 2.58% | 2.49% | 2.35% | 2.47% | 2.85% | |||
| Charging average | 3.24% | 2.91% | 2.68% | 2.94% | 3.83% | |||
SA contributor Harrison Schwarz takes a cautious view from Capital One (COF) on the soaring potential for defaults in 2023.