Credit card profits hit their highest level since 1988 during 2004, driven primarily by lower charge-offs and operating expense. The average pre-tax, return-on-assets for credit card portfolios last year is projected to reach 4.5%, compared 4.4% for 2003, and 4.2% for 2002. CA-based R.K. Hammer Investment Bankers says its data show that charge-offs softened last year as a result of declining consumer bankruptcies and unemployment rates. Operating expense decreased 10 basis points in 2004, due to seasoning of earlier technology investments, to 4.9%. However, the blended cost-of-funds slipped upward during 2004 by 10 basis points, to 2.5%. Hammer says total income yield for 2004 will come in at 17.5%, the lowest since 1999. Hammer predicts that card issuers in 2005 will focus on repricing, especially for higher-risk accounts; late/over-limit fees will continue to rise and be charged earlier in the billing cycle/due date, plus using "universal default" to trigger higher penalty APR's, in order to raise the income components.
| U.S. Bank Credit Card Profitability Historical |
|---|
| (VISA, MasterCard, and Discover) |
|---|
| YEAR | INC | OX | CO | COF | ROA |
|---|
| 1989 | 21.3% | 5.5% | 3.8% | 7.9% | 4.1% |
|---|
| 1990 | 20.9% | 5.1% | 4.3% | 7.8% | 3.7% |
|---|
| 1991 | 20.5% | 4.8% | 4.7% | 7.6% | 3.4% |
|---|
| 1992 | 19.4% | 4.9% | 4.9% | 6.5% | 3.1% |
|---|
| 1993 | 18.6% | 4.7% | 4.6% | 6.0% | 3.3% |
|---|
| 1994 | 18.5% | 4.5% | 4.4% | 5.7% | 3.9% |
|---|
| 1995 | 18.0% | 4.2% | 4.1% | 6.1% | 3.6% |
|---|
| 1996 | 17.9% | 4.3% | 4.2% | 6.1% | 3.3% |
|---|
| 1997 | 17.4% | 4.3% | 4.6% | 5.9% | 2.6% |
|---|
| 1998 | 17.3% | 4.4% | 4.7% | 5.7% | 2.5% |
|---|
| 1999 | 17.9% | 4.5% | 4.4% | 5.9% | 3.1% |
|---|
| 2000 | 18.4% | 4.5% | 4.3% | 6.0% | 3.6% |
|---|
| 2001 | 18.8% | 4.7% | 5.1% | 5.0% | 4.0% |
|---|
| 2002 | 18.5% | 4.9% | 5.4% | 4.0% | 4.2% |
|---|
| 2003 | 17.6% | 5.0% | 5.8% | 2.4% | 4.4% |
|---|
| 2004 | 17.5% | 4.9% | 5.6% | 2.5% | 4.5% |
|---|
| INC-total income; OX-operating expense; CO-charge-offs; |
|---|
| COF-cost-of-funds; ROA-net pre-tax return-on-assets |
|---|
| Source: R.K. Hammer Investment Bankers |
|---|
