NEW YORK—Credit card companies are racking up losses at the fastest pace in almost 30 years, outside of the Great Financial Crisis, according to Goldman Sachs.
“Credit card losses bottomed in September 2021, and while initial increases were likely reversals from stimulus, they have been rapidly rising since the first quarter of 2022. Since that time, it’s an increasing rate of losses only seen in recent history during the recession of 2008,” CNBC said, adding Goldman Sachs believes the troubles will persist.
Overall losses currently stand at 3.63%, up 1.5 percentage points from the bottom, and Goldman told CNBC it sees them rising another 1.3 percentage points to 4.93%.
“This comes at a time when Americans owe more than $1 trillion on credit cards, a record high, according to the Federal Reserve Bank of New York,” CNBC reported.
Peak At Least a Year Away
“We think delinquencies could continue to underperform seasonality through the middle of next year and don’t see losses peaking until late 2024 / early 2025 for most issuers,” Goldman analyst Ryan Nash wrote in a note, adding what is unusual is that the losses are accelerating outside of an economic downturn, according to CNBC.
Of the past five credit card loss cycles, three were characterized by recessions, Nash stated in the note, which adds that the two that occurred when the economy was not in a recession were in the mid-1990s and 2015 to 2019, Nash said.
“In our view, this cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ’15 to ’19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle,” Nash said.
Seeking to Exit Deal
As CUToday.info reported earlier, Goldman Sachs itself has been seeking to exit its card processing partnership with Apple, as well as its role in Apple’s new BNPL offering. The effort is part of a broader move away from retail banking.