Tuesday, January 19, 2010

The Recovery: Write Less Off, Mail More Offers

Good News For Banks; Good News For the Postal Service

Credit card losses are down for major issuers. This bodes well for postal volumes and, as a lagging indicator, it is further confirmation that the economic recovery is well under way.  The U.S. Postal Service could use some good news with postal volumes and revenues falling at terrifying rates.

December Was Six Months Past the Bottom

My estimate is that the business cycle trough was last June.

Credit card solicitations have been a significant use of the mail over the years.  Losses reduce the ability and willingness of credit card issuers to solicit the more profitable lower credit customers , although it increases their need for higher quality customers: a plus for First-Class mail and thus USPS itself.  Higher losses mean greater capital is needed: a scarce and expensive requirement for the nations' banks. While they can borrow at virtually no cost, equity capital costs are punitive.  Think of Citi's recent dilutive offering.

Aparajita Saha-Bubna (with a little help from Joe Bel Bruno and Tess Stynes),  reported in Saturday's Wall Street Journal that delinquency rates fell off "for most credit-card issuers in December, but losses stemming from souring credit-card loans remain elevated."

Capital One:  delinquencies  5.78% down from 5.87% in November
                      write-offs       10.1% up from 9.6% in November

Discover:      delinquencies  5.49% down from 5.65% in November
                      write-offs        8.68% down from 8.98% in November (securitized assets)

American Express:  delinquencies  3.7% down from 4.1% in November
                                write-offs         7.1% down from 7.6% in November

For the quarter:       delinquencies  3.7% down from 3.9% in the third quarter
                                write-offs        7.5% down from 8.9% in the third quarter

Bank of America:  charge-offs       13.5% up from 13% in November

Chase:                write-offs  7.1% down from 8.8% in November
For the quarter:  write-offs  9.3% down from10.3% in the third quarter

Chase is a unit of J.P. Morgan Chase Co

According to the same article, JPMorgan's "Chief Financial Officer Mike Cavanagh said the recent improvement in credit-card losses mightn't continue as the U.S. economy continues to claw its way out of the financial crisis.

"Mr. Cavanagh, speaking to the media after the bank reported fourth-quarter earnings, expects a $1 billion loss for credit cards in the first and second quarters."

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