Warning signs may be visible in Q3 bank earnings

The preview: Earnings season for issuers begins this week, with JPMorgan, Citi, and Wells Fargo reporting results on Friday.

Here are three trends to look out for as issuers reveal what Q3 had in store.

Credit losses are climbing: Credit card losses are rising at the fastest pace in almost 30 years excluding the Great Recession, according to Goldman Sachs.

• Goldman predicts losses will deepen until late 2024 or early 2025 for most issuers.
• JPMorgan’s 30+ day delinquency rate for card services was 1.70% in Q2, compared with 1.05% the year prior and 1.71% in Q2 2019. Wells Fargo’s 30+ day delinquency rate was 2.26%, up from 1.58% last year.
• But total overdue debt balances across all lengths of delinquency are remarkably low and sit well below pre-pandemic levels, according to data from the New York Fed.

Issuers will be wary of delinquency rates climbing past pre-pandemic levels, and likely raised their loan loss provisions again in Q3.

Credit conditions are getting stricter: Warnings of credit tightening have been abundant.

• About 36% of domestic banks tightened standards for credit card loans in Q2 2023, per the Federal Reserve Bank of St. Louis.
• Bank economists expect credit quality and availability to weaken through the end of 2024 for both consumers and businesses, per the American Bankers Association’s Q4 2023 Credit Conditions Index.

But credit card acquisitions haven’t dropped off as a result of this. In fact, credit card openings are approaching a 12-month high, per VantageScore. But Q3 could be the quarter we finally see a slowdown or outright drop in credit card account openings.

Credit card spending is weakening: Consumer sentiment is on the decline, which may shift spending habits.

• The Conference Board’s Expectations Index, which gauges consumers’ short-term economic outlook, decreased to 73.7 in September, down from 83.3 in August.
• And lower consumer confidence can lead to a decline in credit card spending as consumers shift to less risky debit cards, something Bank of America has already reported.

Credit card volume growth may slow—or decrease—due to these shifting behaviors. Even if overall spending holds up, issuers will feel the loss in revenues if credit cards’ share of spend declines.

The takeaway: Despite a stronger-than-expected jobs report last week and cooling inflation, warning signs are still flashing, and concerns aren’t going away anytime soon.

Dates to watch: Keep an eye out for our earnings coverage of these credit card issuers:

• October 13: JPMorgan, Citi, and Wells Fargo
• October 17: Bank of America
• October 20: American Express

This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a three-times-weekly recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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