In an announcement that summarizes the concerns banks and investors share surrounding the consumer, credit cards, and banks, Capital One Financial Corp. (COF) reported credit-card delinquencies eased in December, but charge-off levels continued to rise from a month earlier.
The easing in delinquencies reverses a trend of at least six-straight months of increases. In Capital One’s U.S. credit-card business, 30-day delinquencies eased to 5.78% from 5.87% in November. Internationally, the story was about the same with delinquencies decreasing to 6.55% from 6.6% internationally.
For auto loans, however, the delinquency rate rose to 10.03% from 9.57%.
Repeating a story line that has clouded the earnings report for nearly every bank, Capital One has seen a spike in defaults as rising unemployment and shrinking personal wealth hinder consumers’ ability to pay off their debts.
The news, however, went from less bad to worse when they reported charge-offs. These charge-offs – loans Capital One doesn’t think it will be able to collect—rose to 10.14% in December from 9.6% in November in its U.S. credit-card business and edged up to 9.58% from 9.5% internationally.
Auto-finance charge-offs climbed to 5.68% from 3.67%, with 1.53 percentage points of the increase owing to an accounting change, the bank said in a filing with the Securities and Exchange Commission.
Moody’s Investors Service last month predicted U.S. credit-card delinquencies would continue to rise through much of the winter because of seasonal trends and that charge-off rates would peak at 12% to 13% in the middle of the year.
The credit-card-lender-turned-bank and many others have been struggling with credit concerns as the weak economy and high unemployment pressure balance sheets.
Shares of Capital One, which are up 8% year-to-date, fell 1.6% to $41.01.
The mixed news is par for the course for the bank. Earlier this month, a Stifel Nicolaus analyst boosted his rating on Capital One, saying the worst of losses from loans is likely past, and the company is prepared for regulatory changes in the sector.
However, just last week the bank was downgraded from Buy to Neutral by investment bank Ladenburg, Thalmann & Co. Inc.
Capital One is scheduled to release their fourth-quarter earnings on January 21st.
Capital One Financial Corp. issues MasterCard and Visa credit cards.
