How Credit Card Lenders Stack Up

Monday's performance reports seemed to confirm the new equilibrium in the credit card universe.

Industry executives have asserted that their portfolios are positioned to withstand renewed turbulence in the economy — and that may be true after the years of tough underwriting that followed the recession.

But credit performance is approaching the point where it can improve no further, and reserve releases that have been propping up earnings are swiftly tapering.

This week's disclosures on the performance of securitized credit card loans in September showed that chargeoff percentages, or the proportions of loan portfolios that banks determine are uncollectible at an annual rate, fell from August. Meanwhile, percentages of newly delinquent balances — or those for which payments are overdue by one month to two months and may ultimately have to be written off — ticked up for almost all the nation's largest issuers (see charts).

Both moves were in line with seasonal patterns. (The measures are heavily influenced by tax refunds that give aid to stretched borrowers during the spring and other factors that appear every year.)

But some issuers have already punched below chargeoff levels that they forecast will prevail over the long term, and a dramatic recovery in credit quality that has unfolded despite dismal employment conditions appears to be tailing off.

Citigroup Inc.'s chargeoff rate, which hit the second highest peak during the downturn, fell the most in September, or by 105 basis points to 5.87%. Early stage delinquencies also held steady at less than 1% of the company's portfolio.

After Citi, JPMorgan Chase & Co. and Capital One Financial Corp. notched the smallest increases in early stage delinquencies at one basis point for each.

The leveling off of the improvement in credit card performance was clear in earnings releases. Bank of America Corp. reported that it drew down the amount it had set aside for U.S. card loan losses by $600 million in the third quarter, compared with a $3.3 billion reduction in the loss cushion in the first half.

Similarly, JPMorgan Chase & Co.'s $500 million credit card reserve release compared with $3 billion in the first half. The company projected that chargeoffs would fall modestly again this quarter but not much after that.

During its conference call, Jamie Dimon, the company's chief executive, said, "I think with 9% unemployment it will be silly to assume dramatic improvement at this point."