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Credit card defaults fall, but delinquencies up

Credit card defaults fell more than expected in October, but delinquencies rose in a sign that consumers remain under stress and the sector can expect more pain ahead, credit card companies reported on Monday.
/ Source: Reuters

Credit card defaults fell more than expected in October, but delinquencies rose in a sign that consumers remain under stress and the sector can expect more pain ahead, credit card companies reported on Monday.

The drop in defaults reflects a decline in late payments earlier this year thanks to tax refunds and economic stimulus actions.

But delinquencies, an indicator of future credit losses, rose across the board as more Americans lost their jobs. Capital One Financial Corp and JPMorgan Chase & Co reported the biggest increases in late payments.

"We view this month's numbers as a sign that credit could be coming under greater stress," Barclays Capital analyst Bruce Harting wrote in a note to clients.

Credit card charge-offs and delinquencies usually track unemployment, which rose to a 26-year high of 10.2 percent in October.

Bank of America Corp the largest U.S. bank, said in a regulatory filing that its charge-off rate -- loans the company does not expect to be repaid -- fell to 13.22 percent in October from 14.25 percent in September.

Despite the decline in charge-offs, Bank of America is still the credit card issuer with higher defaults and delinquencies.

JPMorgan, the largest issuer of Visa-branded credit cards, said its charge-off rate declined to 8.02 percent from 8.12 percent, while Capital One's fell to 9.04 percent from 9.77 percent.

Discover Financial Services said its charge-off rate declined to 8.54 percent from 8.69 percent.

"We believe that credit losses will rise in the coming months and should remain elevated in 2010, thereby pressuring earnings," Credit Suisse analyst Moshe Orenbuch wrote in a note to clients.

More trouble ahead?
Capital One said delinquencies rose to 5.72 percent in October from 5.38 percent in September, while JPMorgan's late payments rose to 4.95 percent from 4.69 percent.

Last week, Capital One Chief Executive Richard Fairbank forecast that charge-offs will keep rising and remain elevated throughout 2010, hurt by weakness in the housing market and job losses.

Bank of America's delinquency rate inched up to 7.59 percent from 7.53 percent, and Discover's rose to 5.72 percent from 5.57 percent.

As card losses rose to record highs in recent months, lenders closed millions of accounts, trimmed credit limits and slashed rewards. The companies are also raising fees and interest rates ahead of a new consumer-protection law.

American Express Co, the biggest credit card issuer by purchases, and Citigroup Inc, the largest issuer of MasterCard-branded credit cards, are also due to report the monthly performance of their credit card portfolios on Monday.

Discover shares rose 3.05 percent to $15.87, Bank of America stock was up 1.25 percent to $16.18, Capital One gained 1.01 percent to $39.19, and JPMorgan was up 0.23 percent to $43.00.