U.S. banks ramp up credit card lending but margins may suffer

Mon Oct 13, 2014 1:19am EDT
 
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By David Henry

NEW YORK (Reuters) - As traditional Wall Street moneymakers like stock and bond trading suffer, banks are growing increasingly willing to invest in less glamorous operations: their credit card businesses.

JPMorgan Chase & Co, (JPM.N: Quote) Citigroup Inc (C.N: Quote) and other big banks are making more credit card loans, after years of focusing mainly on customers who paid off their balances each month. Lenders hope that in an era when consumers are conducting more of their banking online and less in branches, an increased emphasis on credit cards will help them sell more products to their customers.

The shift underscores how seemingly staid businesses have become increasingly attractive on Wall Street as tougher capital rules and lower trading volume have cut into profits at trading units. Bank of America and Citigroup now make about 25 percent or more of their income from credit cards, after excluding businesses they are shedding. That is up from about 15 percent before the financial crisis.

Analysts will be closely watching credit card results as banks post earnings this week. They are primed after seeing Citigroup, for example, take in more revenue from cards last year than from stock and bond trading, and after seeing card loan balances increase this year in national banking data.

Bank executives have noticed a change in how rivals are pushing for more card business.

“A lot of companies are getting back to marketing their products aggressively,” said Eileen Serra, chief executive for cards at JPMorgan, which was earlier than others with a bigger push into the cards business.

Banks cut back on advertising, mailings, and rewards programs during the financial crisis, when losses jumped. But the marketing is now increasing again. According to Mintel, a market research firm, banks are on track to mail out about 17 percent more offers for credit cards this year compared with 2010.

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The Citibank logo is seen at the facade of a Citibank building in New York July 14, 2014.  REUTERS/Lucas Jackson