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Credit card charge-offs rise as banks lose hope of collecting

September 15, 2009 |  3:39 pm

The blip down in credit card loss rates at some banks in July now looks like a fluke.

Card loan charge-off rates jumped in August at lenders including Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Discover Financial Services, the banks reported today.

From Reuters:

The trend was echoed among most other major credit card issuers, dashing optimism sparked when many banks and specialty finance companies reported lower default rates for July.

"People have gotten very bullish with the July data, and [the August data] raises the question about how fast the consumer will get better," said Scott Valentin, an analyst at FBR Capital Markets.

Cardstickers BofA said its annualized charge-off rate rose to 14.5% of its card balances in August from 13.8% in July, as it gave up collecting on more delinquent loans.

Citigroup’s charge-off rate jumped to 12.1% from 10% in July. JPMorgan's rate rose to 8.7% from 7.9%.

Another big card issuer, Capital One Financial Corp., said its charge-off rate eased to 9.3% last month from 9.8% in July. But the bank said its percentage of card loans past due rose to 5.1% from 4.8% in July.

BofA, by contrast, reported a small decline in its deliquency rate, to 7.5% from 7.6% in July.

Overall, Wall Street isn’t likely to be shocked by a further rise in card write-offs. Bank loan losses in general will peak in the next few quarters, BofA CEO Ken Lewis said in a speech in Japan today. "Banks always experience their worst losses long after an economic recovery is already under way," Lewis said, according to Bloomberg.

Still, some investors were in a mood to take profits in major bank stocks today despite the broad rally on Wall Street that pushed the Dow Jones industrials up 56.61 points, or 0.6%, to 9,683.41, the highest close since Oct. 6.

BofA slipped 20 cents to $16.79, Citigroup dropped 40 cents to $4.12, JPMorgan lost 56 cents to $43.19, and Capital One sank 90 cents to $37.42.

But American Express rallied 73 cents to $34.65. AmEx said the August charge-off rate for its total card portfolio slipped to 9% from 9.2% in July, and that its delinquency rate eased to 4.1% from 4.2%.

-- Tom Petruno

Photo credit: Mark Lennihan / Associated Press