According to Reuters, U.S. Bancorp (USB) sees new opportunities with their credit card portfolio even as the credit card industry as a whole crumbles under the weight of record losses and tight regulation,
Unlike rivals struggling with huge credit losses, such as Bank of America Corp (BAC) or Citigroup Inc (C), U.S. Bancorp’s credit card division is profitable.
The Minneapolis-based company has emerged as one of the winners of the financial crisis, as its conservative loan underwriting has translated to relatively low credit losses.
Although U.S. Bancorp is the nations sixth-largest U.S. bank, its credit card businesses are small compared to the “big six” players: American Express Co, JPMorgan Chase & Co (JPM), Citigroup, Bank of America, Capital One Financial Corp (COF) and Discover Financial Services.
The bank has only around 11 million credit card customers, compared with around 147 million at JPMorgan, or 34 million at Capital One.
However, several factors are working in U.S. Bancorp’s favor as they try to expand in the credit card business:
– Chargeoffs — loans that are not expected to be repaid — are at 7 percent, one of the lowest levels in the industry.
– They’ve increased their retail branch network by almost 20 percent in the last year.
– It has snatched up smaller rivals that had been seized by regulators, such as California’s Downey Savings & Loan and PFF Bank & Trust. Most recently, it bought nine banks in California, Illinois, Arizona and Texas that had belonged to FBOP Corp.
– It also doubled its direct mail promotions to 10 million in October from 5 million in September, and is the only bank that is mailing more credit card promotions now than a year ago, according to a report of Mintel Comperemedia.
And they’re doing all of this as bigger rivals have cut at least 20 million of credit card accounts, lower lending limits, and raise fees and interest rates to cushion credit losses.
“Compared to other banks, they performed fairly well throughout the recession,” said Andrew Davidson, senior vice president of research company Mintel Comperemedia. “They are positioned to grow,”
“It’s really about capturing a greater wallet share of their customer base, and a deeper penetration of each individual household,” said Todd Hagerman, an analyst at Collins Stuart.
“They are going after former customers of Downey, First Federal, FBOP. These are opportunities for them to greatly expand,” Hagerman said.
The company could also benefit from tougher rules taking effect in February that will limit credit card fees and interest rates. The rules would put an end to aggressive no annual fee or zero teaser rate promotions that made it difficult for smaller players to compete, analysts said.
“The new card law levels up the playing field a little bit for the industry. You could have some smaller players trying to take share from the bigger guys,” said Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods.
