Credit Card Issuers Poised to Beat Q3 Loss Forecasts, Goldman Sachs Says

Credit card issuers are positioned to outperform third-quarter loss expectations after August credit data revealed stable delinquency rates and better-than-anticipated net charge-offs, according to a new report from Goldman Sachs.

August Credit Metrics Exceed Expectations

Industry data for August showed continued resilience among consumers, with key metrics beating forecasts. The performance was supported by stronger-than-usual loan growth.

• 30-Day+ Delinquencies: Rose by a modest 3 basis points month-over-month to 3.57%, below the 3.63% that was anticipated.
• Net Charge-Offs (NCOs): Declined by 12 basis points from July to 4.33%. This was a significant improvement compared to the long-term seasonal expectation of a 6 basis point decline.
• Loan Growth: Accelerated to 4.2% year-over-year, up from 3.9% in July. Month-over-month growth of 0.7% also surpassed typical seasonal patterns of 0.2%.

Performance Across Major Issuers

Trends in net charge-offs, which represent debt deemed uncollectible, were largely favorable across the sector. Bread Financial Holdings saw its NCOs fall 40 basis points to 6.40%, while American Express reported a 12 basis point drop to 1.84%.

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Synchrony Financial's NCOs remained flat at 4.90%, and Capital One Financial saw a slight increase of 4 basis points to 4.16%. Delinquency trends were mostly stable, with American Express holding at 1.16% and Synchrony remaining flat at 4.20%.

Analyst Outlook

Goldman Sachs analysts noted that quarter-to-date trends for NCOs are running well below seasonal patterns. For card issuers to meet current consensus expectations for the third quarter, losses would need to surge by 60 basis points in September.

This is a sharp contrast to the typical seasonal increase of just 10 basis points, suggesting the sector is set up for potential outperformance. The analysis also highlighted rising delinquencies and losses in the auto lending sector for Capital One and Ally Financial, indicating some divergence in credit performance across different consumer loan types.