Consumer credit metrics slip further

Delinquencies and charge-offs continue to worsen for major credit card issuers, as consumers battle higher prices and unemployment creeps up.

Discover Financial Services and Synchrony Financial this week each reported increases in delinquencies and charge-offs. Although net charge-off rates have stayed low amid the pandemic, “there are signs of cracks emerging,” Bank of America equity research analysts wrote in a Tuesday note to investor clients. 

For Riverwoods, Illinois-based Discover, the net charge-off rate rose to 2.5% for November, showing an upward climb from 2.1% in October and 2.0% in September, the company said in a Wednesday filing with the Securities and Exchange Commission. Its delinquency rate ticked up to 2.4%, from 2.2% in October and 2.1% in September.

Stamford, Connecticut-based Synchrony’s net charge-off rate was 3.6% for November, up from 3.4% in October and 2.9% in September, according to its Thursday filing with the SEC. Synchrony’s delinquency rate was 3.6% for November, 3.4% for October and 3.3% for September.   

Those two companies’ stocks were downgraded by Bank of America analysts this week, due to stronger exposure to worsening credit risk and lower-income consumer spending. 

Consumers’ savings, bolstered by federal government stimulus payments during the COVID-19 pandemic, have benefited them in the past two years, but it’s unclear what resources remain. Despite “uncertainty in any estimate of excess savings, one thing seems clear: savings buffers are falling,” the analysts wrote in their note this week. 

Consumer credit losses are expected to rise over the next few quarters if forecasts for rising unemployment materialize and the economic outlook darkens, analysts added.

“The consumer still likely has some built up savings, yet we do expect discretionary income pressure to migrate,” from consumers with lower credit scores up to those with higher scores as job losses grow, Oppenheimer & Co. analyst Dominick Gabriele wrote in a Thursday note to investor clients. “Investors should watch (Discover) metrics closely in search for spreading pressure.”

New York-based American Express has seen more incremental change in its consumer credit metrics. That company reported a write-off rate of 1.0% for November, up slightly from 0.9% in October and 0.8% in September, according to Amex’s Thursday filing with the SEC. Delinquencies held steady since September, at 0.9%. 

Executives have said Amex has a more premium product mix today than it did pre-pandemic, and that’s likely to slow its pace of credit metrics normalization.

Still, Amex’s charge-off rates were higher this October than they were in September and October of last year, as was the case also at Discover as well as issuers JPMorgan Chase, Bank of America, Citi and Capital One, according to a report earlier this month from S&P Global Market Intelligence. 

Consumers’ average perceived probability of missing a minimum debt payment in the next three months also ticked up to 11.8% last month, from 11.6% in October, the Federal Reserve Bank of New York reported this week in its latest consumer survey results. The New York Fed noted those perceptions remain comparable to pre-pandemic rates. 

Credit reporting bureau TransUnion this week predicted a rise in delinquencies in 2023, as the unemployment rate worsens and inflation takes a toll on consumer finances.