Credit Card Issuers' Collective After-Tax Return on Assets Drops 1.58%

Cards&Payments' Annual Bankcard Profitability Study Reveals

Bankcard issuers in 2007 generated a sizeable profit, though not quite as big as in the previous year, according to SourceMedia's Cards&Payments' 2008 Bankcard Profitability Study and Annual Report. During most of 2007, issuers of Visa- and MasterCard-branded consumer and commercial credit cards viewed the subprime mortgage crisis as a peripheral issue until the latter part of the year. By that time, more issuers were increasing loan-loss provisions set aside to counter rising charge-off expenses. Consequently, issuers' profits were affected as the industry posted a collective after-tax return on assets of $18.08 billion, or 2.79% of average outstandings down 1.58% from $18.37 billion and 2.97% in 2006 according to the report.

Featured in the May 2008 issue of Cards&Payments, the study findings were compiled from annual reports, government agencies, card companies' financial results and interviews with financial analysts and industry consultants.

Total revenue among issuers of Visa and MasterCard consumer and commercial credit cards last year reached $117.76 billion, up 2% from $114.99 billion in 2006. Penalty-fee revenue jumped 17% to $7.54 billion from $6.44 billion in 2006 as issuers raised late fees and the percentage of late accounts assessed fees rose. Expenses increased 4% last year to $89.94 billion from $86.72 billion in 2006, driven by a 17% rise in charge-off expenses to $28.19 billion from $24.12 billion in 2006.

This year, issuers face the continued challenges stemming from the U.S. housing crisis and economic slowdown and the effects they have on cardholders' ability to meet their debt obligations. "Thus far this year, issuers seem to be holding their own financially, though the signs are a bit mixed," says Jeffrey Green, Cards&Payments' editor-in-chief. "Their card programs are still making money, but their charge-off rates are escalating. And this is causing issuers to set aside more loan-loss reserves to handle those losses."

Credit card purchase volume last year reached $1.33 trillion, up 3.1% from $1.29 trillion in 2006. Total charge volume including cash advances reached $1.57 trillion, up 2.6% from $1.53 trillion according to the study.

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Cards&Payments is a monthly publication that reports on the global electronic transactions industry covering topics such as credit, debit, prepaid, non card payments, payment acceptance, emerging payments, marketing and more to senior-level executives.

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