JPMorgan Loves Your Crushing Credit Card Debt: Street Whispers
Year to date, JPMorgan has sold nearly $8 billion worth of bonds backed by credit card debt--more than any other issuer, and almost eight times the amount it had sold at this time last year, according to Dealogic data. Discover Financial Services(DFS) , meanwhile, has issued $5.1 billion, followed by General Electric(GE) at $4.9 billion and American Express(GE) at $3.2 billion. Together, those four companies are responsible for more than two thirds of all credit card-backed debt issuance.
The spike in issuance of credit card backed debt--pointed out in a recent Financial Times article--is being driven by low Treasury rates. Investors can get 0.42% more yield from credit card-backed debt than they can for Treasuries in comparable maturities. That's down from a 0.93% differential earlier in the year, but investors are still happy to get something that yields more than Treasuries.
From the perspective of JPMorgan and other issuers, on the other hand, the low yields just make it more attractive to sell their credit card-related exposure into the market rather than keeping it on their balance sheets.
Credit card collection and marketing practices have come under regulatory scrutiny of late. The Consumer Financial Protection Bureau has slapped Capital One Financial(COF) , Discover and American Express with fines recently. JPMorgan, meanwhile, had to temporarily shut down its credit card collection machine in 2011 and is being investigated by the Office of the Comptroller of the Currency, American Banker reported earlier this year. A spokesman for JPMorgan, which never confirmed the investigation, declined to comment.
Still, whatever troubles JPMorgan may be having collecting its debts aren't showing up in quarterly earnings. The bank reduced by $2.1 billion capital it had set aside for "losses predominantly related to the mortgage and credit card portfolios," according to the bank's second quarter earnings report filed with regulators. The reduction was because "delinquency trends improved and estimated losses declined," the filing stated.
-- Written by Dan Freed in New York.