UPDATE: Some Credit-Card Issuers Post Loan Growth

Some large credit-card issuers are showing small signs of loan growth as competition for borrowers reaches a fever pitch.

American Express Co. (AXP), Capital One Financial Corp. (COF) and Discover Financial Services (DFS) said Thursday their cardholders' balances have inched up. While it is too early to tell if the increases will lead to lasting growth, the results are a positive sign for an industry that faces headwinds going into the new year.

With improvements in delinquencies and loan charge-offs losing steam, credit-card issuers are under pressure to increase loans to raise revenue. That's led to a boost in marketing by the industry's biggest players, who hope to win customers using other lenders' credit cards.

"It's all about the battle for share of wallet," said Andrew Davidson, senior vice president of research firm Mintel Comperemedia. "These companies that are competing at this level are making an investment in trying to obtain a customer for the long term. It's all about the lifetime value of the customer."

American Express's U.S. card loans totaled $51.4 billion in November, up 3.6% from a year ago and 1.6% from October, according to a filing with the Securities and Exchange Commission.

However, the New York lender's delinquency rate, or percentage of borrowers at least 30 days behind on a payment, was flat for the second straight month at 1.5%. Its net charge-off rate, or percentage of loans deemed uncollectible, rose to 2.4% from 2.3% in October.

Capital One, which reported similar trends in November, said its U.S. card loans reached $54.8 billion, up 3.2% from a year ago and up 1.8% from October. The McLean, Va.-based bank's delinquency rate was flat at 3.73% and its net charge-off rose to 4.29% from 3.96% in October.

Discover, which reported quarterly earnings Thursday, said its credit-card loans grew during the three months ended Nov. 30 to $46.6 billion, up 3.3% from a year ago and about 1% from the previous quarter. Its quarterly delinquency rate declined year over year, to 2.39% from 4.06%, and its charge-off rate fell to 3.24% from 6.95%.

The Riverwoods, Ill.-based lender has faced more competition from banks pushing cash-back credit cards, which has traditionally been Discover's forte.

Discover doesn't feel pressure to match or beat the offers by some of its competitors, who have dabbled in the cash-back market in the past, Roger Hochschild, the company's president and chief operating officer, said in an interview Thursday.

"Copying someone copying you is not a good strategy," Hochschild said.

Marketing industrywide has bounced back over the last year, a stark turnaround from the recession when most credit-card issuers pulled back sharply as they grappled with surging delinquencies and charge-offs.

Credit-card issuers mailed 1.34 billion offers to consumers in the third quarter, up from 987.7 million a year ago, according to Mintel Comperemedia. However, the volume is down from the 1.78 billion offers mailed in the fourth quarter of 2007, when the recession started.

As borrower performance has improved, lenders have become more confident in their ability to manage their portfolios, prompting them to ramp up marketing again, Davidson said.

Several large card issuers continued to see improvements in loan performance in November.

Bank of America Corp. (BAC), which reported data for loans packaged into securities, said its delinquency rate fell to 3.96% last month from 3.97% in October. Its charge-off rate fell to 5.67% from 5.98%.

J.P. Morgan Chase & Co.'s (JPM) delinquency rate for securitized loans fell to 2.54% from 2.55% in October, when the rate had inched up from the prior month. However, charge-offs were flat at 4.18%.

However, Citigroup Inc.'s (C) delinquency rate for securitized loans rose to 3.28% in November from 3.26% in the previous month. Its net charge-off rate also rose, to 6.36% from 5.66%. Citi had seen these rates decline in recent months.

The fact that some lenders, such as Capital One, saw their delinquency rates flatten in the quarter is a sign that loan portfolios are returning to historical performance, which has been expected, said Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods.

-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214; [e-mail]