Amid a tough job market and unemployment at a 26 year high, consumers have struggled, creating huge losses for consumer banking companies who have paid the price. Over the past year, financial institutions have set aside billions of dollars to cover bad credit card and auto loans. But the nation’s third largest credit card issuer, Capital One Financial Corp. recently reported a profitable 2009 fourth-quarter — earning $.83 per share. And American Express reported nearly a three-fold jump in profits during the last quarter of 2009, compared to the same period in 2008.
The increase in profits for American Express was driven by a climb in cardholder spending from $172.6 billion compared to $160.5 billion a year ago. Another factor showing improvement was the drop in loan defaults from 8.9% in the previous quarter to 7.5%. “We ended the year on a positive note with cardmember spending up 8% and credit indicators showing further signs of improvement,” said American Express Chairman and Chief Executive Kenneth I. Chenault.
The good news from Capital One was a result of their profitable credit card business during the fourth quarter of 2009. Net income was $376 million, or 83 cents a share, compared with a loss of $1.45 billion, or $3.74, in the period a year earlier. Net charge-offs in the overall credit card industry slipped to 9.58% in the fourth quarter, from 9.59% in the third. But overall, charge-offs are still up from 6.93% in the previous year’s period.
What does all this mean for consumers? Even with an excellent credit history, it’s been difficult for many consumers to get approved for a new credit line. And with interest rates at all-time lows, credit card rates have remained surprisingly high. But if credit card companies start to see profits again, it’s likely they’ll see value in approving more applicants. Although it’s tough to say what will happen with interest rates, hopefully they’ll also start to come down as card companies become more competitive. Only time will tell…
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