U.S. banks ramp up credit card lending but margins may suffer
As traditional Wall Street money makers like stock and bond trading suffer, banks are growing increasingly willing to invest in less glamorous operations: their credit card businesses.
JPMorgan Chase & Co, (JPM.N) Citigroup Inc (C.N) and other big banks are making more credit card loans, after years of focusing mainly on customers who paid off their balances each month.
The shift underscores how seemingly staid businesses have become increasingly attractive on Wall Street as tougher capital rules and lower trading volume have cut into profits at trading units.
Analysts will be closely watching credit card results as banks post earnings this week. They are primed after seeing Citigroup, for example, take in more revenue from cards last year than from stock and bond trading, and after seeing card loan balances increase this year in national banking data.
“A lot of companies are getting back to marketing their products aggressively,” said Eileen Serra, chief executive for cards at JPMorgan, which was earlier than others with a bigger push into the cards business.
So far, the big banks have shown no sign of seeking more subprime borrowers, industry experts say, but some expect banks will gradually ease credit standards as increased competition and the drive for higher profits pushes them to look harder for new borrowers.
In the years after the financial crisis, banks focused on credit card customers who were big spenders, charging upwards of $15,000 a year on their cards, but who also generally pay down their balances in full every month.
“The lending business generates significant, sustainable, quality revenue,” said Jud Linville, the chief executive for Citigroup’s branded cards.
Banks are all looking for the holy grail: consumers who spend a lot, and will carry a balance from time to time, including all the interest rate charges that often run to a rate of 15 percent or more.
Source: reuters- U.S. banks ramp up credit card lending but margins may suffer
