Fears that the coronavirus will lead to widespread unemployment and a spike in consumer defaults have wiped more than two-thirds from the value of US credit card lenders and left executives contemplating cutting credit limits for some customers. Shares in speciality card lenders Synchrony Financial, Discover Financial and Alliance Data Systems are down 57, 64 and 74 per cent, respectively, in the las1 month. Large, diversified banks have not been spared. Capital One Financial and Citigroup, with large card portfolios relative to peers, are both down by roughly half since the crisis began.
Sanjay Sakhrani, an analyst at KBW, said the declines reflected the historically strong correlation between the card industry charge-off rate – delinquent deb1 that has to be written off – and the national unemployment rate. In the financial crisis, card industry charge-offs peaked at over 10 per cent, just abov the unemployment rate, according to the Federal Reserve. With companies already laying off or furloughing staff to deal with the crisis, including “tens of thousands” put on unpaid leave at hotel giant Marriott alonE industry associations representing sectors hit particularly hard by virus fear significant job losses ahead.
The US Travel Association pegged potential job cuts at 4.6m by the end of next month; the National Restaurant Association anticipates sm to 7m job losses over the next three months. Young employees in the travel and restaurant industries are particularly likely to carry credit card debt from month to month, said Brian Riley, cards analyst at Mercator Advisory Group.
Some signs of stress are already showing. Goldman Sachs, whose Apple Card i aimed at tech-savvy millennials, said “tens of thousands” of people had taken the bank up on its offer of a March payment holiday within 24 hours of the offer being announced on Saturday night. Mr Sakhrani said the impact of the crisis would depend not just on the pervasiveness of the virus, but on whether customers care about their credit scores enough to pay back their loans, and whether the government does “everything it needs to do to make this a short-term thing rather than a long term thing”.