America's Credit Card Slump: Delinquencies Reach 12-Year High As Issuers Lower Credit Limits
Portfolio Pulse from Natan Ponieman
Credit card delinquencies in the U.S. hit a 12-year high in Q4 2023, according to the Philadelphia Fed. The report indicates a troubling trend for consumers and credit card issuers, with nearly 3.5% of users carrying balances past due dates. Credit card companies are responding by lowering credit limits, with the median limit for new cards dropping from $3,368 to $3,000. Mastercard and Visa are raising fees to offset losses from an antitrust settlement. The largest credit card issuers, including JPMorgan Chase, Capital One, Citigroup, Discover, Bank of America, and American Express, are likely to be affected. Capital One's planned acquisition of Discover could create the largest credit card company in the U.S. ETFs like iShares US Financial Services ETF and Financial Select Sector SPDR Fund, with significant exposure to these companies, could also be impacted.
April 11, 2024 | 8:39 pm
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POSITIVE IMPACT
Capital One's planned acquisition of Discover could reshape the credit card market, potentially boosting its market position but also attracting regulatory scrutiny.
The acquisition could create synergies and market dominance, positively affecting COF's stock. However, regulatory concerns and integration challenges pose risks.
CONFIDENCE 80
IMPORTANCE 90
RELEVANCE 90
NEUTRAL IMPACT
Mastercard announced a fee increase to mitigate losses from an antitrust settlement, indicating potential short-term financial pressure but also a strategy for revenue recovery.
Fee increases can lead to higher revenue, but also risk customer dissatisfaction. The impact on stock price will depend on how investors view the balance between these factors.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 80
NEUTRAL IMPACT
Visa, alongside Mastercard, is raising fees as part of an antitrust settlement recovery plan, which could affect its short-term financial outlook and investor sentiment.
Similar to Mastercard, Visa's fee increase is a strategic move for revenue recovery. The market's reaction will hinge on perceived impacts on customer base and overall financial health.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 80
NEGATIVE IMPACT
iShares US Financial Services ETF, with over 35% exposure to major credit card companies, could see fluctuations due to the sector's rising delinquencies and fee adjustments.
Given its significant exposure to the credit card sector, IYG might experience volatility as the market reacts to delinquency trends and fee changes among major issuers.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 70
NEGATIVE IMPACT
As the largest credit card issuer, JPMorgan Chase faces significant exposure to rising delinquencies, potentially impacting its financial performance and stock price.
Increased delinquencies could lead to higher loan loss provisions, affecting profitability. As the largest issuer, JPM's financials and stock might be more sensitive to these trends.
CONFIDENCE 90
IMPORTANCE 85
RELEVANCE 90
NEGATIVE IMPACT
Financial Select Sector SPDR Fund, with large exposure to credit card issuers, could be impacted by the sector's challenges, including higher delinquencies and fee hikes.
XLF's performance may be influenced by the credit card industry's current challenges, as it holds significant stakes in major issuers facing delinquency and fee-related pressures.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 70