Credit Cards Are a ‘Bright Spot’ in Bank Earnings, Analysts Say

(Bloomberg) -- Credit card results at JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. were a highlight in third-quarter earnings.

“Steady growth and healthy risk-adjusted margins bode well for card issuers,” Nomura’s Bill Carcache wrote, calling the card performance a “bright spot” and adding that he’s more bullish on card issuers versus banks.

JPMorgan led the group, with the fastest rate of growth at 8.1% year-over-year, Carcache said. Meanwhile, Citigroup’s Citi-branded card saw the greatest sequential improvement, boasting a 100 basis point increase to 3.1% even as purchase volume growth decelerated and credit quality continued to normalize.

Mastercard Inc. shares rose as much as 1.3% on Tuesday while Visa Inc.’s gained as much as 1.2% to the highest since Sept. 10. Bank stocks rallied, with JPMorgan the undisputed leader in a crowded start to bank earnings. The bank’s shares touched an all-time high after reporting better-than-expected earnings. Citigroup rose as much as 2.6% to the highest since July 29 and Wells Fargo climbed as much as 4%.

Read more: Earlier, JPMorgan Shares Hit Record, Leading Banks to Session Highs

Citigroup’s comments on cards helped “push shares higher,” KBW’s Brian Kleinhanzl wrote. He flagged remarks about “still seeing the benefit from the movement of promotional balances to full rate balances,” with the bank’s CFO noting that “they could still see some spread benefit in branded cards.” That’s positive as KBW was modeling lower spreads in the fourth quarter.

Citigroup’s “Branded Card was a standout in the quarter,” with revenue growth nearly doubling, Evercore ISI’s Glenn Schorr wrote. That may get attention as investors were “grappling” with Citi’s decision to “grow the promo bucket a bit more recently,” he said.

Not everyone was equally optimistic. Sandler O’Neill’s Christopher Donat wrote that “deceleration for debit and credit card spending growth has very small negative implications for U.S. activity of card networks” Mastercard and Visa. Donat also saw the deceleration as having “negative implications for broader economic growth.”

Share gains at Mastercard and Visa so far this year are outpacing JPMorgan and Wells Fargo, though Citigroup is topping Visa. Mastercard is up about 48%, Visa has climbed 36% and Citigroup has rallied 38% year-to-date; JPMorgan is up 23%, while Wells Fargo has gained about 9%.

Earlier, JPMorgan CEO Jamie Dimon acknowledged a “a more challenging interest rate backdrop,” but noted the bank’s “consumer lending businesses benefited from our continued investments and a favorable environment for borrowers, which helped drive healthy volumes in Home Lending and Auto and strong loan growth in Card.”

Dimon also noted that U.S. GDP growth has slowed, but he said that “the consumer remains healthy with growth in wages and spending, combined with strong balance sheets and low unemployment levels.” At the same time, he warned that’s “being offset by weakening business sentiment and capital expenditures mostly driven by increasingly complex geopolitical risks, including tensions in global trade.”

©2019 Bloomberg L.P.

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