Author Topic: Loan-loss provision up 17 percent on credit card company  (Read 4479 times)

Fred

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Loan-loss provision up 17 percent on credit card company
« on: October 16, 2014, 11:00:56 PM »
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Capital One set aside $993 million for future losses, up 17 percent from a year earlier.
http://www.foxbusiness.com/markets/2014/10/16/loan-loss-provision-weighs-on-credit-card-company-capital-one-3q-profit-stock/

I often compare LC lenders as both competitors and in-the-same-business as credit card companies, so I found this article very relevant.  Some kind of a "leading indicator", perhaps?

I guess Capital One's future losses are related to the LC ANAR's "adjustment for estimated future losses on past due loans."

Fred93

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #1 on: October 17, 2014, 01:10:02 AM »
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Capital One set aside $993 million for future losses, up 17 percent from a year earlier.
http://www.foxbusiness.com/markets/2014/10/16/loan-loss-provision-weighs-on-credit-card-company-capital-one-3q-profit-stock/

We need to know whether this is an indicator of changing economic conditions, or just something specific to Capital One, ie changes in their underwriting or level of execution.

lascott

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #2 on: October 17, 2014, 01:28:52 AM »
Thanks for pointing this stuff out Fred**2

In trying to do google searches releated to this I found a 2010 article that gives a hint on "charge offs" when times are tough.

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Capital One Financial Corp. said charge-offs, or credit-card loans on which the lender doesn't expect to collect, increased to an annualized rate of 10.1% in December from 9.6% in November in its U.S. credit-card business.
<snip>
Discover Financial Services said charge-offs in December totaled 8.68% of credit-card loans that have been packaged into bonds, down from 8.98% in November.
<snip>
American Express Co. continued its streak of reporting relatively healthier credit trends. The company said U.S. borrowers at least a month behind on card payments declined to 3.7% in December from 3.9% in November.
<snip>
AmEx wrote off 7.1% of its card loans last month, compared with 7.6% in November. For the fourth quarter, the company wrote off 7.5% of its U.S. card loans, according to preliminary data, down from 8.9% in the third-quarter. AmEx officials declined to comment.

Bank of America Corp. reported a write-off rate of 13.5%, up from 13% in November, reversing a three-month trend of declines. The company has had the highest write-off rate among its peers since at least July.A Bank of America spokesman declined to comment beyond the regulatory filing.

Chase, a unit of J.P. Morgan Chase & Co., said it wrote off 7.1% of credit-card loans last month, down from 8.8% in November. For the fourth quarter, write-offs totaled 9.3% compared with 10.3% in the third-quarter.
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Fred93

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #3 on: October 17, 2014, 02:36:14 AM »
Federal reserve has good data on their website which they call ... wait for it ... FRED.
http://research.stlouisfed.org/fred2/


Fred

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #4 on: October 17, 2014, 02:46:24 AM »
Federal reserve has good data on their website which they call ... wait for it ... FRED.

Cheers to all Fred's, wherever you are. ;-)

rawraw

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #5 on: October 17, 2014, 11:12:19 AM »
Provisions aren't charge offs.  You guys may already know this, but maybe you don't.  Provisions can be due to changing loan mix.  It could also be a way to anticipate the requirements under CECL, the new provision proposal under review at FASB.

Fred

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #6 on: October 17, 2014, 12:14:37 PM »
Provisions aren't charge offs.

This is what I also understand in my non-LC experience.   However, LC's ANAR effectively charges off the provisions, thus artificially depressing the ANAR values.

rawraw

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Re: Loan-loss provision up 17 percent on credit card company
« Reply #7 on: October 17, 2014, 06:45:49 PM »
Provisions aren't charge offs.

This is what I also understand in my non-LC experience.   However, LC's ANAR effectively charges off the provisions, thus artificially depressing the ANAR values.
Well ANAR is a little different from provisions.  I don't know how much exposure you have, but there is FAS 5 and FAS 114 loans.  ANAR is really a FAS 114-esque adjustment, where it is determining loss in impaired loans.  FAS 5 would be the loss factor on current loans.  The FAS 114 impairments are charge offs.  This is a simple version at least.

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As far as the next line item - the general reserve versus the specific reserve - the FAS 5 is a general reserve. We are basically saying that we are not going to look at each one of these non-impaired loans individually - substandard or greater typically - we are going to just group them into homogenous pools, we are going to look at a historical loss rate, and we are going to apply it against those homogenous pools in order to determine a general reserve.

The FAS 114 is the alternate side of that. These are loans that we need to look at more specifically due to their impairment status. We are going to identify on a loan-level basis the total recorded investment into a loan, contrast that with whatever underlying value that we anticipate receiving over the life of the loan, and from there make a determination on a specific reserve, loan by loan.