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Mixed Credit Card Issuers’ Earnings; PeerIQ’s MPL Loan Performance Monitor
By Vy Phan
January 27, 2019
Greetings,
For the first time since the financial crisis, CEOs of the six largest banks were summoned to Congress to testify before the new financial services. The panel is eyeing dates in March or April.
Earnings season continues with credit card issuers reporting this week. Credit card master trust data shows that delinquencies have picked up from their lows but remain significantly below their peaks. Issuers (with the exception of Capital One), have increased loan loss reserves at a rate higher than loan growth as credit renormalization continues. ROE has jumped significantly YoY driven by loan growth, improved NII, low charge-offs and the effects of tax cuts. We will look at credit-card issuers’ earnings in detail below.
30 and 90-day delinquency rates from credit card master trust data
Source: Bloomberg, Bank Credit Card Trust Data, PeerIQ
In MPL securitization news, Prosper’s PMIT 2019-1 is a $172 Mn deal that KBRA has rated A on the senior tranche. PMIT 2019-1 is backed by collateral owned by Prosper, unlike prior deals which were backed by collateral owned by Prosper’s consortium of buyers. This is the 2nd MPL deal of 2019 after SOFI 2019-A, and is the first consumer loan deal of 2019. The weighted average spread on SOFI 2019-A was 23 bps wider than that on SOFI 2018-D given the market volatility in 4Q18. We will keep an eye on how this latest consumer deal will price.
KBRA has rated the senior tranche on Ygrene’s latest $225 Mn PACE deal AAA. The senior tranches priced at 120 bps over swaps. KBRA has rated the senior tranche on Mosaic’s latest $260 Mn solar securitization A.
In this week’s newsletter, we look at the fourth quarter earnings of credit card issuers and present our latest MPL Loan Performance Monitor.
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PeerIQ’s Webinar on Consumer Credit Digest for Unsecured Consumer Term Loans PeerIQ will be hosting a webinar on Webinar on Consumer Credit Digest for Unsecured Consumer Term Loans on Wednesday, the 30th of January at 2 pm EST. Join us for this 30-minute webinar where we will discuss: · A brief overview of consumer credit bureau data · How TransUnion’s data was ingested and transformed to power the Digest · Review and commentary on key charts contained in our first full issue Click here to register and to add the invitation to your calendar.
Source: PeerIQ |
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PeerIQ’s Loan Performance Monitor (as of October 2018) We are pleased to release our latest MPL Loan Performance Monitor which tracks the delinquency rates, cumulative losses, cumulative prepays and transition matrices using public marketplace lending data that comprises unsecured consumer loans originated by Marketplace Lenders. Some highlights from the latest (as of October 2018) report are:
Source: PeerIQ |
Mixed 4Q Credit Card Issuers’ Earnings
Credit card issuers had a mixed quarter. All issuers, except Capital One, saw revenue growth and all issuers saw significant earnings growth YoY. AmEx and Synchrony delivered the highest loan growth. Synchrony extended its retail card partnership with Sam’s Club although Walmart has moved its retail card business to Capital One.
Executives were upbeat on the state of the US consumer and expected continued increases in consumer spending. Discover noted that severities on defaulted loans had been picking up as borrowers have been more indebted than in the past.
Stock price performance post earnings has also been mixed with Capital One down by ~6% but Synchrony up by 11%. We look at issuers’ earnings individually below.
Source: Bloomberg, PeerIQ
Revenues at American Express grew by 8% YoY to $10.5 Bn to record levels.
- Earnings were $2 Bn, up from a loss in 4Q17.
- NII grew by 17% YoY to $2 Bn.
- AmEx’s loan book grew by 13% YoY to $86 Bn.
- Provision for credit losses increased by 14% YoY to $1.0 Bn, while total loss reserves increased by 22% YoY to $2.7 Bn. Growth in both provisions and reserves outpaced loan growth.
- Loss reserves as a percentage of loans increased by 0.2% points YoY to 2.0%.
- Net charge-offs increased by 17% YoY to $0.7 Bn. The net charge-off rate increased by 0.2% points YoY to 2.0%.
- AmEx expanded its partnership with PayPal and will allow AmEx cardholders to use PayPal’s and Venmo’s features for P2P money transfers and for shopping at merchants who accept PayPal.
- AmEx is the first foreign company to get an approval from the People’s Bank of China to build a domestic payments network.
- ROE at AXP increased by 21.9% points YoY to an industry-leading 35.6%.
Capital One’s was the only issuer to have seen a drop in revenues and loans outstanding. Revenues fell by 1% YoY to $7 Bn.
- Earnings were $1.3 Bn, up from a loss in 4Q17. NII was flat at $5.8 Bn.
- Loans fell by 3% YoY to $246 Bn. COF noted that they have been cautious in increasing credit limits which hurt loan growth.
- Provision for credit losses decreased by 15% YoY to $1.6 Bn, while total loss reserves decreased by 4% YoY to $7.2 Bn. COF was the only issuer to see a drop in provisions and reserves driven by better than expected performance on auto loans.
- Loss reserves as a percentage of loans was flat at 2.9%.
- Net charge-offs decreased by 12% YoY to $1.6 Bn. COF was the only issuer who saw a drop in the net charge-offs. The net charge-off rate decreased by 0.2% points YoY to 2.7%.
- COF will acquire $9 Bn in Walmart’s credit card receivables and will start issuing Walmart store cards in late 2019.
- COF’s ROE was 10.1%.
Discover’s revenues grew by 12% YoY to $3.4 Bn. Earnings grew by 78% YoY to $0.7 Bn.
- NII grew by 9% YoY to $2.3 Bn.
- Discover’s loans grew by 7% YoY to $91 Bn.
- Provision for credit losses significantly outpaced loan growth and increased by 18% YoY to $0.8 Bn, while total loss reserves increased by 16% YoY to $3 Bn.
- Loss reserves as a percentage of loans increased by 0.2% points to 3.4%.
- Net charge-offs increased by 18% YoY to $0.7 Bn. The net charge-off rate increased by 0.2% points YoY to 3.1%. Discover noted that severities on defaulted loans had been picking up as the borrowers have been more indebted in general.
- Discover tightened origination standards on its unsecured personal lending business. Discover’s personal loan portfolio grew by only 1% YoY to $7.5 Bn, but the charge-off rate on the portfolio increased by 0.9% points YoY to 4.5%.
- Discover’s ROE increased by 9% points YoY to 25%.
Synchrony’s revenues grew by 14% YoY to $4.9 Bn. Earnings more than doubled YoY to $0.8 Bn.
- SYF’s NII grew by 11% YoY to $4.3 Bn.
- Loans grew by 14% YoY to $93 Bn.
- Provision for credit losses increased by 7% YoY to $1.5 Bn, while total loss reserves increased by 15% YoY, in line with loan growth, to $6.4 Bn.
- Loss reserves as a percentage of loans increased by 0.1% points to 6.9%.
- Net charge-offs increased by 9% YoY to $1.2 Bn. The net charge-off rate decreased by 0.2% points YoY to 5.5%. SYF had the highest net charge-off rate among all issuers.
- Synchrony extended its retail card partnership with Sam’s Club, despite losing Walmart’s overall store card business. Synchrony will sell Walmart’s $9 Bn receivables portfolio to Capital One.
- Synchrony extended its partnership with Amazon for credit cards and launched a credit card with eBay. Synchrony also extended its partnership with Google to provide financing for Google Home products.
- ROE at SYF increased by 11% points YoY to 21.5%.
Industry Update:
- CEOs of Six Top Banks to Testify Before Congress (WSJ, 1/24/19) Nearly ten years after the financial crisis, bank CEOs will testify before Congress.
- Fed should open the payments system to fintechs (American Banker, 1/24/19) An op-ed argues that the Fed should allow FinTechs access to the payments system and require regulatory oversight in order to receive such access.
- American Express earnings miss Wall Street expectations (FT, 1/17/19) Revenues at American Express grew by 8% YoY to $10.5 Bn, below market expectations.
- Capital One stock falls after company's revenue miss (MarketWatch.com, 1/22/19) Capital One’s was the only issuer to have seen a drop in revenues and loans outstanding, as revenues fell by 1% YoY to $7 Bn.
- Synchrony's stock soars after Walmart's Sam's Club partnership extended, earnings beat expectations (MarketWatch.com, 1/23/19) Synchrony’s revenues grew by 14% YoY to $4.9 Bn and earnings more than doubled YoY to $0.8 Bn.
- Discover Financial earnings soar, but stock falls (MarketWatch.com, 1/24/19) Discover’s revenues grew by 12% YoY to $3.4 Bn and loans grew by 7% YoY to $91 Bn.
- Millions of bank loan and mortgage documents have leaked online (TechCrunch.com, 1/23/19) About 24 Mn mortgage-related documents have leaked online from Ascension, a data analytics company.
- PMIT 2019-1 Presale (KBRA, 1/25/19) Prosper’s PMIT 2019-1 is a $172 Mn deal that KBRA has rated A on the senior tranche. PMIT 2019-1 is backed by collateral owned by Prosper.
- Ygrene sells first 2019 PACE deal as policy headwinds persist (GlobalCapital, 1/22/19) Ygrene priced the senior tranche at 120 bps over swaps.
- MSAIC 2019-1 Presale (KBRA, 1/22/19) KBRA has rated the senior tranche on Mosaic’s latest $260 Mn solar securitization A.
Lighter Fare:
- Boeing’s electric autonomous passenger air vehicle just had its first flight (MIT Tech Review, 1/24/19) The Jetsons’ future is here as Boeing has just flown its first self-flying car.