Guest Post: An Analysis of JPM's Credit Card Business

2009 Credit Card Segment Results: JPMorgan Chase
By Keith Hazelton, The Anecdotal Economist

Credit Card Fee and Interest Income Soar as Nation's Largest Credit Card Company Hammers the Customers Who Bailed It Out in 2008

While we are waiting for the December Federal Reserve G.19 Consumer Credit report due February 5th, which will confirm 2009's complete collapse of Revolving Consumer Credit resulting from millions of the insolvent and near-insolvent 60 percent or so of Americans who carry credit card balances month-to-month but who desperately are trying to reduce the hideous debt-shadow which has remained long after the afterglow has faded from years of restaurant meals, trips to Disney World, flat-screen televisions, college tuitions and entrepreneurial forays, inquiring minds may care to put JPM Morgan Chase's full-year card services results under the microscope.

In JPM's January 15, 2010 earnings release, on pages 18-20 of its Earnings Release Financial Supplement, the nation's largest credit card company by cards and balances details the sorry state of what in better years was its most profitable segment.

JPM's 2009 Card Services segment results are summarized in the table above, which highlights some of the lowlights:

• End of year balances, both held and securitized (so-called Managed Card Assets), fell 14.1 percent in 2009 to $163.4 billion. The number of cards issued (not detailed above) also fell 14.0 percent to 145.3 million from 168.7 million at the end of 2008.


• Notwithstanding a $26.9 billion decline from 2008, JPM's credit card fee income (late fees, overlimit fees, telephone payment fees, balance transfer fees, annual card fees) soared 30.5 percent to $3.6 billion, and net card interest income jumped 26.4 percent to $17.4 billion as the bank clearly scrambled to raise interest rates on as many cardholders as possible ahead of 2010 rule changes.


• Reflecting those abominable fee income and interest income grabs from the very taxpayers who enabled their own misery by allowing JPMorgan Chase to be bailed out in 2008 along with the rest of the "too big to fails," the bank's credit card net revenue as a percentage of average balances grew 15.7 percent in 2009.


• JPM's 2009 total charge volume fell 11.0 percent to $328.3 billion, reflecting the nation's newfound preference for debit cards and cash.


• 2009 charge offs nearly doubled to $16.1 billion (Managed Card basis), representing 9.33 percent of average card balances.

So, JPM Chase in 2009 oversaw the charge-off of $16.1 billion of its own and securitized credit card balances, and its still-solvent card debt-slave customers paid down (or transferred, however unlikely) another $10.8 billion, which equals the $26.9 billion decline in EOY balances.

So far, according to the Fed, 2009 revolving consumer credit balances have plunged more than $100 billion through November, and it looks like JPM Chase, which held a 22 percent card market share in 2008, is accounting for slightly more of the decline than its market share would warrant.

Bank of America, the nation's number two credit card company, which reports 4Q and 2009 results January 20th, has been writing off its managed card balances at an annual rate of more than 13 percent, and we will look forward to seeing its grim full-year results, as well as those of the other dozen or so financial institutions which now control nearly 90 percent of the racket industry.

The nation's big banks in the 1990s and early 2000s wanted to consolidate the then-immensely profitable credit card industry in the worst way, and, as 2009 results will prove, they got it - in the worst way.

And to remind readers where we think revolving consumer credit balances are headed (to $300 billion - $500 billion from the nearly $900 billion last month) over the coming decade, here's a repost of a chart we first published in December.

Credit Card Bond Sales Zero As the Credit Markets and Consumption Engines Stalls

Approaching our economic problems through crony capitalist bailouts of a few large banks (speculative investment banks by any other name) without reform is a policy error of the first order. Attempting to maintain the same unworkable status quo while doing nothing for the wage earners and the bulk of consumers is the curse of ideology and a financial sickness unto death.

Bloomberg
Credit Card Bond Sales at Zero, First Time Since 1993
By Sarah Mulholland

Nov. 5 -- Credit card companies were shut out of the market for bonds backed by customer payments in October for the first time in more than 15 years, as investors shunned the debt amid the global credit freeze.

A weakening job market and a looming recession are making it harder for consumers to make monthly payments, eroding confidence among investors about the safety of credit-card-backed bonds. It's the first month since April 1993 that there have been no sales, according to Wachovia Corp. data. Issuers sold $17.1 billion of the debt in October 2007, the data show.

``Nobody is eager to put money to work given the uncertainty in the market,'' said James Grady, a managing director at Deutsche Bank AG's asset management unit. ``When you think it can't get worse, it continues to get worse. There is not a demand'' for these bonds.

Top-rated credit card-backed securities maturing in three years traded at a gap, or spread, of 475 basis points over the London interbank offered rate, or Libor, during the week ended Oct. 30, JPMorgan Chase & Co. data show, 25 basis points higher than the previous week. The debt was trading at 50 basis points more than Libor in January.

The higher cost to sell the bonds makes it more expensive for banks and credit card companies to fund loans to customers. New York-based American Express Co. paid 160 basis points more than Libor at a Sept. 11 sale of the securities compared with 30 basis points over the benchmark at a similar sale in October 2007, Bloomberg data show.