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Rewards promo, Costco deal help drive card growth at big banks

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Rewards promo, Costco deal help drive card growth at big banks

The nation's four largest banks all showed year-over-year growth in key credit card loan measures for a second consecutive quarter, but the pace and nature of their respective expansions varied.

Aided by what company executives described as the strongest expansion in sales volume in a decade and robust account openings, JPMorgan Chase & Co. produced its fastest rate of growth in period-end card loans in more than seven years at 7.9% year over year. Year-over-year growth of 3% in ending U.S. credit card outstandings at Bank of America Corp. represented a second consecutive period of expansion. The June 2016 addition of the Costco Wholesale Corp. U.S. co-branded portfolio continued to boost the Citi-branded card book of Citigroup Inc., with its year-over-year rate of expansion in the fourth quarter of 2016 approaching 28%. Wells Fargo & Co., despite a sharp decline in new accounts, reported credit card outstandings in the fourth quarter of 2016 up 7.8% from the year-earlier period.

Chase opened 2.7 million new accounts for a third consecutive period during the fourth quarter of 2016. Prior to the second quarter of 2016, it had been since the third quarter of 2010 that the bank's new account openings equaled or exceeded that amount. Credit card sales volume of $148.5 billion marked an increase of 13.5% from the fourth quarter of 2015. Chase previously showed expansion in card sales volume at a double-digit year-over-year pace in the third quarter of 2014, and its highest level of growth during the past five years previously had been 12.3% in the second quarter of 2012.

The Sapphire Reserve card has served as a focal point of the bank's recent growth. During an initial promotional period that concluded Jan. 11, new account holders were eligible to earn 100,000 bonus points upon spending $4,000 in the first three months after obtaining the card. The current promotion halved the number of bonus points offered.

JPMorgan CFO Marianne Lake said during the bank's Jan. 13 conference call that she has been encouraged by the initial levels of customer spending and engagement generated by the card. Lake said Chase expects it to be "very accretive" and to generate a "strong return," even with the 100,000-point promotion.

At Bank of America, a more old-fashioned approach has driven recent expansion as it has focused on making sure its best banking customers obtain and use its card products. U.S. card purchase volumes of $61.02 billion represented a year-over-year increase of 3.9%. While new accounts slipped in the fourth quarter of 2016 by 10% year over year, they were up slightly in full year 2016 relative to 2015 levels.

Citi's year-over-year growth was expected in light of the timing of the Costco deal, but executives noted during a Jan. 18 call that branded card loans grew about 11% during the second half of 2016 in a development they attributed to "strong engagement" with existing cardholders and "significant" growth in new account balances.

Wells Fargo said it opened approximately 319,000 new consumer card accounts during the fourth quarter of 2016, which represented declines of 52% sequentially and 47% year over year. It cited "reduced marketing activities and customer reaction to the sales practices settlement" for the plunge. The bank had issued an average of 621,000 new accounts per quarter in the 15 reporting periods through the third quarter of 2016.

Although Wells Fargo saw a year-over-year increase in purchase volume of 6.6% and reported its best month on record from that perspective in December 2016, the rate of growth was the slowest the bank had shown in at least the past 13 reporting periods. The bank's year-over-year growth in outstandings was the slowest it produced since the third quarter of 2013.

Company officials cautioned during a Jan. 13 call that they had not seen an increase in new card applications since they "stabilized" in October 2016. Wells Fargo recently reintroduced marketing initiatives that include "some" outbound calling and direct mail.

Forthcoming earnings reports from Capital One Financial Corp., Discover Financial Services and American Express Co. should offer additional perspectives on a business that remains highly competitive.