Bank of America ramps up credit card loans

Wed Jan 8, 2014 10:45am EST
 
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By Peter Rudegeair

(Reuters) - Bank of America Corp's (BAC.N: Quote) credit card unit did something surprising in the third quarter: it grew.

The second largest U.S. bank has been cleaning up and shrinking its credit card portfolio since 2009, after getting burned by bad loans. Now that the bank has shed its worst accounts and cut its total loans by 62 percent, it is ready to dial up its lending.

The bank is focused on selling credit cards to its existing customers. This will insure the bank knows more about the customers it is lending to and save money on marketing.

"That was our biggest strategic choice," said Titi Cole, a senior executive for retail products, referring to the bank's decision to focus on existing customers. "The card business will be smaller, but less volatile and more profitable."

So far, its efforts seem to be paying off. Average U.S. credit card balances at the Charlotte, North Carolina bank rose 0.32 percent, from $89.7 billion to $90.0 billion, between the end of June and the end of September. That's a small increase, but it's the first in at least three years. (An accounting change starting in 2010 makes it difficult to compare quarterly balances from recent years to 2009 and earlier periods.)

The bank also issued 1 million new cards in the quarter, the highest number since 2008, and new card issuance in the fourth quarter should continue to be strong, chief executive Brian Moynihan said at an investor conference on December 10.

Banks in general are looking to boost their credit card portfolios now — they mailed out 45 percent more credit card offers in November than they did a year earlier, according to Credit Suisse and Mintel Comperemedia data—and some, most notably Wells Fargo & Co (WFC.N: Quote) are focusing on marketing to existing customers.

The benefits of offering cards to current customers is clear - Bank of America executives have calculated that if clients who already have a checking account sign up for a credit card or other loan from the bank, it will take in over $1,000 in additional revenue per household. It calls this strategy the "stairstep approach". The bank has broadly been struggling to boost revenue.   Continued...

 
Customers use ATMs at a Bank of America banking center in New York's financial district January 17, 2013. REUTERS/Brendan McDermid