Card companies are struggling to recover from $1 billion in losses racked up last year as a result of the financial crisis. Auriemma Consulting Group, a New York firm that specializes in the payments industry, estimates that card companies could earn about $4 billion this year. That is less than a quarter of the record $18 billion earned in both 2006 and 2007, according to Auriemma, which doesn’t include financial results from American Express Co. or Discover Financial Services Inc.
“We will all have to get used to lower profits, lower credit lines and higher interest rates. There’s no precedent for this,” said Megan Bramlette, a director at Auriemma.
Data show that the pace of delinquencies and defaults slowed in July, which is expected to help stem industry losses and even help banks post profits because they no longer need to set aside as much cash to cover future losses.
Credit-card companies are struggling to recover from $1 billion in losses racked up last year as a result of the financial crisis.
But the slowdown of delinquencies isn’t expected to help the bottom line as long as unemployment stays high and purse strings remain tightened. Those conditions don’t help growth. The amount of outstanding credit-card loans shrank 10% last year, to $772.19 billion, due to tighter lending standards and a drop in consumer spending, according to the Nilson Report, a Carpinteria, Calif., industry newsletter.
Those loan portfolios are continuing to shrink. Chase, one of the largest issuers, has shaved more than $20 billion from its $127 billion portfolio. Over the past year, the bank has pulled back credit from its riskiest and least profitable customers.