Card Chargeoffs Accelerate, Break 10 Percent Barrier in May

Credit card chargeoffs are continuing to grow, with no immediate signs of any change despite some improvement in overall financial institution performance in the last couple of months.

The rise in the chargeoff rate crescendoed past a key barrier in May, as Moody’s Investor Service reported that its credit card index showed a nationwide average chargeoff rate of 10.62 percent. It’s the highest rate ever recorded by the ratings agency and marks the first time the rate has been above 10 percent.

Card loss rates have been closely tracking the unemployment rate over the past year, according to Fitch Ratings. The firm expects credit card performance to “deteriorate further over the balance of the year as unemployment rises and card portfolios contract” according to a recent analysis report.

But bankers at J.P. Morgan Chase and Bank of America had warned recently that the loss rates could exceed the unemployment rate in this severe downturn.

J.P. Morgan Chase said that chargeoffs at it Chase card operations would likely hit 9 percent to 9.5 percent soon. The company said its managed net chargeoff rate hit 7.7 percent in the first quarter, up from 5.6 percent the previous quarter and well above the 4.4 percent seen a year ago.

In its first quarter earnings, announced after the close of the stock market on Tuesday, Capital One announced that charge-offs increased to 8.39 percent in the first-quarter from 7.08 percent in the fourth quarter.

Capital One set aside $124.1 million for loan losses, anticipating a further deterioration of its credit portfolio that is under pressure as unemployment rises.

The Labor Department reported early Thursday that the unemployment rate for June was 9.5 percent, up from 9.4 percent in May.

The ARM Unemployment Rate, created by industry advisory firm Kaulkin Ginsberg, rose 8.28 percent to 13.07 percent, according to the latest Kaulkin Ginsberg Consumer Finance Report. The ARM Unemployment Rate is a measure of unemployment that gages the total impact of labor market weakness for the ARM industry by aggregating unemployment and underemployment among the demographics most likely to fall within the industry’s purview.