Two of those seven seven banks are 5-Star Capital One, N.A. and 4-Star Discover Bank, which have combined credit card loans of $230 billion. If their merger is approved, the combined bank will have much more than the current #1, 4-Star JPMorgan Chase Bank, N.A., which has about $180 billion.

Capital One has (by far) the largest dollar amount of delinquent credit card loans with $3.8 billion (2.9% of the total) 90 days or more past due.

Discover comes in at #4 in this dubious category with $2.1 billion, or (coincidentally)  2.1%, of its credit card loans reported as noncurrent. (The national average is 1.8%.) There are other things for regulators to consider as well, before they rubber-stamp this merger.

7 Banks Hold Nearly 80% of Industry Credit Card Loans

As of March 31, 2024, just seven banks hold 78% of the banking industry’s total $1.08 trillion in outstanding credit card loans. Each one of the seven holds more than the entire credit union industry balance of $80 billion. (We promised last week to bring you more information on credit card loans this week (JRN 41:29); we did not promise it would be pretty.)

Two of the seven banks are 5-Star Capital One, N.A. and 4-Star Discover Bank, which come in at #3 and #4, respectively, with combined credit card loans of $230 billion. If their merger is approved, the combined bank will have much more than the current #1, 4-Star JPMorgan Chase Bank, N.A., which has about $180 billion.

We have reported several times already on Capital One’s offer to purchase Discover, which was announced in February (JRN 41:09). The purchase price of $35.3 billion amounts to roughly 30% of Discover’s loan portfolio, which is almost entirely (95%) consumer loans with the vast majority being credit cards.

It should come as no surprise to anyone that this transaction has been met with fierce opposition—ranging from customers to consumer groups and all the way to Washington. We know better than to speculate on the outcome but we do believe our position as a community bank advocate is pretty clear.

Capital One and Discover are both large banks that have already achieved economies of scale.  Furthering growth by way of this merger would certainly limit consumer choices, but there are other things to consider. For one, Discover Bank has been operating under an FDIC Enforcement Action since September for failing to develop adequate systems to comply with consumer protection laws.

Another thing to consider is that as of March 31, 2024, Capital One and Discover each have well above average delinquency rates on their credit card portfolios… and delinquencies at both are growing.

Capital One has (by far) the largest dollar amount of delinquent credit card loans with $3.8 billion (2.9% of the total) 90 days or more past due.

Discover comes in at #4 in this dubious category with $2.1 billion, or (coincidentally)  2.1%, of its credit card loans reported as noncurrent. The national average is 1.8%.

Discover is one of 52 banks listed on page 5 that each have more than $5 million in consumer loans (which may or may not be credit card loans). They also reported (at March 31st) that at least 1.5% of either total consumer loans or the credit card subset is in arrears 90 days or more. None of the banks 52 banks are rated 5-Stars and all have an Adjusted Bauer’s Capital Ratio (CR) of less than 10%.

Since we omitted 5-Star banks, Capital One is not listed on page 5. Here are some banks that can be found there:

4-Star CitiBank, N.A., Sioux Falls, SD, one of the largest banks in the nation, is also one of the largest credit card lenders. It comes in at #2 sandwiched between #1 4-Star JPMorgan Chase Bank and #3 5-Star Capital One. These are the only three banks with more than $100 billion in credit card loans.

CitiBank’s 9% leverage capital ratio (CR) is slightly above its peer group’s of 8.7% and its nonperforming asset ratio is just 0.3% compared to 0.47% for its peers. In fact, total nonaccrual loans and other past dues as a percent of net worth at CitiBank are 3%, well below the peer group average of 4.9%.

When you break the consumer loans out, the picture changes a bit. CitiBank’s consumer loans represent 36% of its entire loan portfolio and most of those are credit cards. Delinquent credit card loans represent 1.67% of the credit card total, below the 1.8% national average (page 2).

4-Star MidFirst Bank, Oklahoma City, OK is another story entirely. It stands out on page 5 because its nonperforming loans are extremely high—over 10% of total loans. What is not immediately clear from the list, though, is that a great number of MidFirst Bank’s loans carry government guarantees. That does not apply to its credit card loans, but credit cards account for less than 0.1% of MidFirst Bank’s loan portfolio.

As of March 31st, MidFirst Bank reported that $550,000 worth of its $26.146 million credit card loans were 90 days or more past due. That’s 2.1%, and it secured a spot on page 5 for MidFirst Bank.

That brings us to 4-Star Synchrony Bank, Draper, UT, the credit card issuer for a great number of stores across the country. Synchrony Bank has assets of $113.551 billion, of which $97.2 billion is loans, and 92% of that is credit card loans.

Delinquent credit cards total $2.32 billion or 2.6% of the total. Because of the way it operates, we can use Synchrony Bank as a bellwether for the credit card industry as well as the American consumer. A sneak peak into its June call report shows an increase in credit card loans of about half a million ($507,000) but a slight decrease in delinquencies. That’s bad news that people are having to charge more on credit but good news that they are  better able to pay it in a timely manner. Even if just a little, lower delinquencies are better.