With the exception of the Great Financial Crisis, credit card businesses are suffering losses at the greatest rate in over 30 years, according to Goldman Sachs.
Although initial increases were probably reversals from stimulus, credit card losses reached their lowest point in September 2021, and since the first quarter of 2022, they have been growing quickly. Since then, the pace of losses has increased at a rate only previously observed during the 2008 recession.
The firm believes that it is far from over.
According to the Federal Reserve Bank of New York, 0Goldman anticipates losses to increase by another 1.3 percentage points to 4.93% from where they presently stand at 3.63%, up 1.5 percentage points from the low. At a time when Americans have record-high credit card debt of more than $1 trillion,
“We think delinquencies could continue to underperform seasonality through the middle of next year and don’t see losses peaking until late 2024 / early 2025 for most issuers,” analyst Ryan Nash wrote in a note Friday.
He emphasised that it is rare that the losses are increasing outside of a recession.
Three of the last five credit card loss cycles, according to him, were characterised by recessions. In the mid-1990s and from 2015 to 2019, according to Nash, were the two instances where there was no recession. He made predictions about future losses based on the past.
“In our view, this cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ’15 to ’19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle,” Nash said.
He added that historical data indicates that losses often peak six to eight quarters after loan growth peaks. That suggests the credit normalisation cycle is just halfway through, which is why he predicted it would end in late 2024 or early 2025.
Capital One Financial, according to Nash, faces the greatest potential for loss, followed by Discover Financial Services.
(Source:www.investopedia.com)
Although initial increases were probably reversals from stimulus, credit card losses reached their lowest point in September 2021, and since the first quarter of 2022, they have been growing quickly. Since then, the pace of losses has increased at a rate only previously observed during the 2008 recession.
The firm believes that it is far from over.
According to the Federal Reserve Bank of New York, 0Goldman anticipates losses to increase by another 1.3 percentage points to 4.93% from where they presently stand at 3.63%, up 1.5 percentage points from the low. At a time when Americans have record-high credit card debt of more than $1 trillion,
“We think delinquencies could continue to underperform seasonality through the middle of next year and don’t see losses peaking until late 2024 / early 2025 for most issuers,” analyst Ryan Nash wrote in a note Friday.
He emphasised that it is rare that the losses are increasing outside of a recession.
Three of the last five credit card loss cycles, according to him, were characterised by recessions. In the mid-1990s and from 2015 to 2019, according to Nash, were the two instances where there was no recession. He made predictions about future losses based on the past.
“In our view, this cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ’15 to ’19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle,” Nash said.
He added that historical data indicates that losses often peak six to eight quarters after loan growth peaks. That suggests the credit normalisation cycle is just halfway through, which is why he predicted it would end in late 2024 or early 2025.
Capital One Financial, according to Nash, faces the greatest potential for loss, followed by Discover Financial Services.
(Source:www.investopedia.com)
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